
Class rj I'Sff^ 



:x 



Book. 

Copyright^" '^ 66 



COPYRIGHT DEPOSIT. 



/ 



THE ECONOMIC 

AND 

SOCIAL PROBLEM 



BY 



MICHAEL FLURSCHEIM, 

Author of "Rent, Interest and Wages," "The Real 

History of Money Island and Clue to the 

Economic Labyrinth," etc 



31 1^ 




published by 

JEFFERSON PUBLISHING COMPANY, 

BASIL BARNHILL, Manager, 

Xenia, Clay County, Illinois, U. S. A. 



A^ 






COPYRIGHT. 1909 

BY MICHAEL FLURSCHEIM 

EXTRACTS PERMITTED IF ORIGINAL IS INDICATED 



ICI.A25T1250 



PROGRESS 

The time is ripe, and rotten-ripe, for change ; 
Then let it come : I have no dread of what 
Is called for by the instinct of mankind ; 
Nor think I that God's world will fall apart 
Because we tear a parchment more or less. 
Truth is eternal, but her effluence, 
With endless change, is fitted to the hour ; 
Her mirror is turned forward to reflect 
The promise of the future, not the past. 
He who would win the name of truly great 
Must understand his own age and the next, 
And make the present ready to fulfill 
Its prophecy, and with the future merge 
Gently and peacefully, as wave with wave. 
The future works out great men's purposes; 
The present is enough for common souls, 
Who, never looking forward, are indeed 
Mere clay, wherein the footprints of their age 
Are petrified forever ; better those 
Who lead the blind old giant by the hand 
From out the pathless desert where he gropes, 
And set him onward in his darksome way. 
I do not fear to follow out the truth. 
Albeit along the precipice's edge. 
Let us speak plain : there is more force in names 
Than most men dream of; and a lie may keep 
Its throne a whole age longer, if it skulk 
Behind the shield of some fair-seeming name. 
Let us call tyrants tyrartts, and maintain 
That only freedom comes by grace of God. 
And all that comes not by His grace must fall ; 
For men in earnest have no time to waste 
In patching fig-leaves for the naked truth. 

— James Russell Lowell. 



CONTENTS 



CHAPTER PAGES 

I. A Problem and its Solution - - 1-16 

II. Land - - 17-69 

III. • Money - 69-114 

IV. Circulation 1 15-149 

V. Capital, Capitalism and Interest - 149-177 

VI. Democracy ------ 177-200 

VII. Co-operation - - - - - 201-227 

VIII. Socialism and Trusts . - _ 227-267 

IX. Conclusion 268-277 



THE ECONOMIC AND SOCIAL PROBLEM. 



CHAPTER I. 

A PROBLEM AND ITS SOLUTION. 

The great social problem is : First, the question wh}' a growing number 
of workers have to go without necessaries and luxuries, though only too 
anxious to produce them for each other; and Second, what are the ob- 
stacles interposed against the exertion of their productive power? 

"I gave a beggar from my little store 
Of well earned gold. He spent the shining ore 
And came again and yet again, still cold 
And hungry as before. 

I gave a thought, and through that thought of mine 
He found himself a man. supreme, divine. 
Bold, clothed, and crowned with blessings manifold, 
And now he begs no more." 

— Ella Wheeler Wilcox. 

A caravan trudges wearily through the hot sand of the desert. 
At last an oasis is reached, and all rush toward the life-giving fluid. 
But only a meagre quantity is found, hardly sufficient for all, and 
already the more vigorous travellers are making use of their strength 
to monopolize this supply. Weak and tired pilgrims whose strength 
had barely sufficed to permit their reaching the oasis, despair of 
being able to force their way to the spring. 

Fortunately the leader approaches, and his exhortations are heard. 
He asks the strong ones to moderate their greed, and to let their 
poor brethren obtain some of the water. He shows them how wrong 
it is for them to store away water for future use before others* have 
as much as quenched their thirst. 

Who has not heard this gospel, preached in the holy writings of 
all peoples, resounding from every pulpit of our churches? They 
are old, very old, these admonitions — as old as humanity. Our 
parents have heard them before us. their parents before them, and 
their echoes come down to us, faintly and more faintly, from the 
ever-receding generations of the past. 

But do not let us, in pondering over these glorious teachings" of 



r THE ECONOMIC AND SOCIAL PROBLEM. 

the brotherhood of man, of unselfish love and devotion, of charity 
and benevolence, of the division of the last loaf and coat, forget to 
look after our caravan, which, meanwhile, has continued its march. 

The desert now lies behind the pilgrims, and a wonderful valley 
opens before their astonished eyes. As far as they can see, extends 
quite a forest of fruit trees bending under their precious loads, 
while blooming meadows crossed by lovely little rivulets invite the 
wanderer to a delicious rest. Sweet feathered songsters fill the 
balmy air with their delightful melodies. A real paradise, from 
which cares and troubles of any kind seem forever banished, opens 
its inviting arms to our footsore travellers. Nearer and nearer they 
approach to it ; already they see the entrance of the valley, and in 
a few hours they expect to rest there refreshed and happy. 

But, oh. how dreadful ! A roaring torrent separates them from 
the valley ; its foaming rapids interpose a seemingly impassable 
barrier between our poor pilgrims and the lovely paradise. 

A few intrepid men throw themselves into the seething waters ; 
but most of them perish before the eyes of their companions, who 
cannot succor them. Only a few hardy swimmers succeed in reach- 
ing the opposite shore. The majority cannot swim and must remain 
on the barren side of the stream. 

By irrigating the soil they raise scanty crops, and with the help 
of the fruits thrown over from the other side they manage to eke 
out a bare living. Unfortunately, most of the fruit thus thrown 
fails to reach the bank of the stream, and that which is successfully 
aimed is nearly always injured in its fall. The majority of the 
lucky ones, moreover, prefer to take their ease in the paradise they 
have attained to, little heeding the entreating voice of the leader 
which is wafted to them over the stream. 

Again and again it makes itself heard, that old and well-known 
command of charity, and more than ever since the world exists, it 
is obeyed. A few of the successful swimmers, a Leo Tolstoy, for 
instance, seeing how little can. after all. be accomplished by alms- 
giving, renounce their enjoyments rather than monopcjtize them; 
and, braving all hardships, return to their brethren so that they 
may partake of poverty with them. 

Good, well-meaning men they, and those also who without tiring, 
throw fruits over, most of which are spoilt or never arrive, and are 
carried to the ocean by the waves of the stream. Wiser men, how- 
ever, those few exceptional thinkers who spend day and night of 
their lives considering whether it might not be possible to construct 
a bridge by which the whole caravan could be brought over into 
the happy valley. They are not in the least deterred by the jibes 
(jr threats of the others, even of those whom to help they strain 
every nerve. "A bridge over such a wide and unfathomable stream! 
What a ITopia ! The fools had better make use of their precious 
time to throw us some more fruits !" Such are the shouts occasion- 
ally coming over to them from the other shore. 



A proble:m Axn its solution. .^ 

■ Humanity has arrived at the border of the desert through which 
it has been wandering during so many centuries. A hard and con- 
tinuous fight against terrible odds has marked the different stages 
of the struggle so far. Where the stronger managed to secure a 
larger share the weaker ones suffered in consequence, and the ex- 
hortations of the moral leaders again and again demanded justice, 
■or at least charity. Where entreaty proved without effect, threats 
had to help. The most terrible torments of supposititious hells, cruel 
inventions of human fanaticism, have been shown in prospective to 
the hard-hearted rich, whose entrance into heaven has been made 
to appear more difificult than the passage of a camel through a 
needle's eye. 

Meanwhile, gradually, almost imperceptibly, the outlook on the 
march has changed. Let us listen to some of the observers. 

"On the virgin soil of America's prairies lOO men, with the help 
of powerful machines, produce in a few months the bread required 
by 10,000 men during a year. The wonders obtained in industry 
are still more astonishing. With those intelligent beings, the mod- 
ern machines, the achievements of three or four generations of in- 
ventors, mostly unknown, 100 men produce the clothing which 10,000 
men require during two years. In well-organized coal-mines 100 
men extract yearly enough fuel to supply warmth for 10,000 families 
m a rough climate." (Kropotkine, "The Conquest of Bread.") 

Let us double, yea, even treble the number of persons required to 
cater for man's wants, and we arrive at the result that less than one- 
tenth of the population could supply all with the necessaries of life. 
This accords with the calculation of others. Dr. Theodor Hertzka, 
for instance, the *we11-known Austrian economist, who, in "Die 
Gesetze der sozialen Entwicklung," figures out what labor will be 
required to produce the common necessaries of life for the 22,000,000 
inhabitants of Austria ; with the result that agriculture and all in- 
dustries, including mining and building, need 615,000 persons, dur- 
ing present working hours, 300 days a year to provide the whole 
population with the necessaries of life. But these 615,000 laborers 
are 12.3 per cent, of the population able to work, excluding all women 
and all persons under 16 years or over 50 years of age. Hence, 
should the '5.000,000 individuals, instead of 615,000 be engaged in 
work, they would need to work only 36.9 days every year to pro- 
duce everything needed for the support of the population of Austria. 
But should all the 5,000,000 work all the year — say 300 days — each 
would need to work only about one hour per day. To produce all 
the luxuries now used, in addition, these 5,000,000 would need to 
work only another half hour a day. 

A book could be filled with statistics proving our immense prog- 
ress in the arts of production and communication. I give a few 
items from an address delivered in Boston by Professor Frank 
Parsons : "Steam and electricity, and mechanical contrivances have 
multiplied the productive power of labor many-fold. A sewing 



4 THE ECONOMIC AND SOCIAL PRonLEM. 

machine will do the work of 12 to 15 women. A Al'Kay machine 
enables one workman to sole 300 to 600 pairs of shoes a clay ; while 
he could handle but 5 or 6 pairs a day by former methods. A good 
locomotive will pull as much as could 800 horses or 8,000 men ; 
4 men with the aid of machinery can plant, raise, harvest, mill, and 
carry to market wheat enough to supply with bread 1,000 people 
for a year. A girl in a cotton mill can turn out calico enough in a 
year to clothe 12.000 persons, more or less, depending somewhat on 
the size of the persons, and the number of changes of cotton they 
have. The total machine power of the country is equivalent to the 
labor of half a billion willing slaves, or an average of 20 to every 
human worker. On the basis of slavery, the Athenians built up a 
civilization in which every free man might have ample leisure for 
culture, and civic and social life. On the grander basis of service 
by the power of Nature, we are building up a civilization in which 
all shall be truly- free, and shall enjoy ample leisure for develop- 
ment and association with far greater means for both than the 
Athenians ever possessed. In Athens, during her palmiest days, 
there were 5 or 6 slaves for every free man ; our machinery already 
equals 20 for every worker, and in another fifty years may equal 
40, 50. 60, or more for every man ; or 100. perhaps, for every family. 
And these splendid servitors of steel and brass are exempt from 
the pangs of hunger and cold, are never oppressed with weariness, 
lose no liberty in their servitude, and find no misery in subjection." 

From Brotherhood, of May, 1900: "Mr. Ernest H. Crosby tells 
of a factory he inspected where the manufacture of cheap socks was 
carried on. The manager showed him 400 sock-making machines. 
The machines run 24 hours a day, and only 50 boys are needed for 
all shifts ; 5,000 dozen of socks are made daily. Under the old 
method, this work would have required about 50,000 men or women." 

Leone Levy has calculated that to make hy hand all the yarn spun 
in England by the use of the self-acting mule would take 100.000.000 
men. It is reckoned that 30 men, with modern machinery, could 
do all the cotton spinning done in Lancashire a century and a half 
ago. 

William Godwin Mcxjdy, of Brooklyn, author of "Land and Labor 
in the United States." and "Our Labor Difficulties." sworn and 
examined before the .Senate Committee on Education and Labor, 
in 1885. says: "Now one girl with her loom will weave as much 
cloth as could 100 women in my mother's time. One man will go 
into the field to-day and will do the work that required from 50 to 
100 men to do when I was a boy." Question. "Do you mean in 
agricultural pursuits?" Answer. "Yes. A single man with a 
reaping machine, one of the smallest capacity, with 6 or 7 feet cut- 
ting board, will go into the field and will cut and bind from 15 to 
20 acres of grain in a day of ten hours. When my father went 
into the field with a sickle upon his arm. it took four men a full day 
to cut and bind a -iu'^lc acre, and the Scotch Agricultural Society 



A PROBLEM A Nil l( S SOLUTION, 5 

reported, in an examination upon that matter, that it required five 
men for one day to cut and bind one acre of grain ; but now one 
man will cut and bind from 15 to 20 per day ; or, going beyond 
that, one of the improved machines will cut and thresh and sack 
the yield of 50 acres in a day." 

'"The steam-gang plow, combined with a seeder and a harrow, 
has reduced the time required for human labor (in plowing, sow- 
ing and harrowing) to produce a bushel of wheat, on an average, 
from 32.8 minutes in 1830 to 2,2 minutes at the present time. It 
has reduced the time of animal labor per bushel from 57 to ij^ 
minutes. . . . Before Whitney's invention it required the work of 
one person ten hours to take the seeds from one and a half pounds 
of cotton. The machine will now do, in the same ten hours, more 
than four thousand times as much. ... A steam shovel will do in 
eight minutes what one man can do, with difficulty, in ten, hours. 
The dirt may be unloaded from a train of cars in six minutes, that 
would require, with a shovel, a day's work of ten men. A stone 
crusher will perform the work of six hundred men." — (The Social 
Unrest, John Graham. Brooks.) 

We see, as far as productive power is concerned, that the paradise 
of our picture has been reached. Where this power has increased 
from ten to twenty-fold, on. the average, in the course of centuries, 
there ought to be more than enough product for all; and other ex- 
hortations ought to take the place of those which long ages have 
so accustomed us to, that the following admonition of an American 
Fabian is quite in its place : "London boasts of her i6,ooo,ooo in 
missions, etc., besides uncounted sums in private almsgiving, while 
New York records with pride her $5,000,000 spent in municipal 
charity, her $5,000,000 in organized charity, her $5,000,000 given 
by societies, $5,000,000 by churches, and $10,000,000 of private 
personal giving — $30,000,000 in all. 

"Instead of exulting in the fact that she gives $30,000,000 a year 
'to the poor,' New York should rather hide her head in shame that 
she has so many poor to give to. What sort of an economic system 
is this which works so badly that $30,000,000 a year will scantily 
serve to patch it up? Is this peace or is it war which requires a 
city to expend $30,000,000 a year in the gathering up and caring 
for part of the crushed, the diseased, the mangled, and the disabled 
of its citizens? 

"A really intelligent community would as soon think of boast- 
ing of its epidemics and diseases as of its expenditure for 'the poor' 
— would as soon vaunt itself on the length of its death list, as upon 
the magnitude of its charities. Pompous rehearsals of the sums 
given 'for sweet charity' are to be sighed over rather than rejoiced 
in." 

Few of those who discuss the social problem are aware of the 
fact that the term has entirely changed its meaning. Formerly the 
wealth of the few was not only in glaring contrast with the poverty 



O THE hXONOMIC AM) SOCIAL I'RDIU-KM. 

of the many, but it supplied one Cailse of this poverty. One only, 
for, in any case, primitive methods of production, transportation 
and communication, the destructive agencies of nature and of man. 
did not permit wealth-accumulation by the producer. When, m 
addition, a powerful minority robbed the masses of a more or less 
considerable portion of their share, the explanation of the prevail- 
ing misery did not offer any difficulty to the student of history. 

As though by a sorcerer's magic wand, the Spirit of Invention 
created a new world. The .spoilt children of the twentieth century, 
with its enormous technic progress, can hardly realize that men are 
still Hving who travelled on roads inferior to those of ancient Rome, 
in vehicles not much superior to those used two thousand years 
ago, men, who saw the spinning-wheel and hand-loom supply most 
of the people's clothing; other commodities being produced by 
similar primitive methods. Productive power has grown at lea'^t 
ten-fold within a single century.* 

I speak advisedly when I say productive power or productivit\ , 
instead of production ; for actual production lags more and more 
behind potential production, productivity. It is this discrepancy 
which we usually call overproduction, though in reality it is nndcr- 
prodnction. and this underproduction is the riddle of the economic 
Sphinx, the social problem of modern civilization. 

We have underproduction m a double sense : a relative under- 
production as compared with potential production or productive 
power, and an absolute underproduction of the necessaries of life 
mostly needed by the unemployed starving workers ; starving, be- 
cause without purchasing power ; without purchasing power, be- 
cause unemployed ; and unemployed in consequence of relative 
underproduction. Tailors go in rags and cannot buy clothing or 

*The best and shortest summary of this progress has been given by Pro- 
fessor E. E. DolBear ; "The nineteenth century received from its predecessors 
the horse; we bequeath the bicycle, the locomotive, and the automobile. 
We received the goose-quill ; we bequeath the fountain-pen and typewriter. 
We received the scythe; we bequeath the mowmg machine. We re 
ceived the >ickle ; we bequeath the harvester We received the hand 
printing press; we bequeath the Hoe-cylinder press. We received the painter's 
brush ; we bequcatli lithography, the camera, and color photography We re 
ceived the hand loom ; we bequeath the cotton and woolen factory. We re- 
ceived gun-powder; we bequeath nitroglycerine. We received twenty-three 
chemical elements ; we bequeath eighty. We received the tallow dip ; we 
bequeath the arc liglit. We received the galvanic battery ; we bequeath the 
dynamo. We received the flint lock ; we bequeath automatic Ma.xmis. We 
received the sailing ship; we bequeath the steamship. We received the beacon 
signal-tire; we bequeath tlie telephone and wireless telegraphy. We received 
leather tire-buckets ; we bequeath the steam tire-enginc We received wood 
and stone for structures ; we bequeath twenty-storied steel Innldmgs. We 
received the stairway; we bcqueatli tlie elevator. Wc received ordmary light; 
we bequeath the Rimtgen rays. We received the weatlier unannounced ; we 
bequeath the weather bureau. We received the unalleviablc pain ; we bequeath 
aseptics, chloroform, ether, and cocaine. We received the average duration of 
life of thirty years; we bequeath forty years." 



A PROBLEM AND ITS SOLUTION. ^ 

the raw material out of which to make clothing, because the money 
to buy it with is inaccessible through absence of work, due to an 
insufficient demand f6r other people's clothing. 

Workers in the building-trades are houseless, because too many 
houses have been built and few more are needed. Thus deprived 
of work, they cannot pay rent. And so we could go on through 
the whole list of necessaries and luxuries. Everywhere we find 
want, through absence of employment, due to the so-called "over- 
production" of really underproduced goods, and overproduction 
not in one department of production, balanced by a temporary under- 
production in another, but a general overproduction. Occasionally 
we still find fossils who confound the commercial crisis, which 
embraces all departments of production with those difficulties under 
which certain expiring methods of production suffer in consequence 
of new inventions, such as hand-weaving after the introduction of 
the power-loom, or nailmaking by hand after machine nails came up. 

To increase the confusion we hear the very men who raise the 
cry of overproduction in the face of absolute and relative under- 
production, speak of overpopulation, as if we could have overpopu- 
lation and overproduction at one and the same time, overpopulation 
being necessarily correlated with underproduction of the necessaries 
of life. Overpopulation may in reality exist where the system of 
production is so primitive that the yield of the land is insufficient 
to produce sustenance for all its inhabitants. Parts of the United 
States may have been overpopulated before the white man came 
here, where the Indian hunter did not find game enough in his 
tribe's territory to supply nutriment for all ; although a much larger 
population afterward found plenty of food in the same region, 
when the white farmer had begun to plow the soil. Intensive culture 
under the progress of agronomy can feed increasing populations on 
areas where a few farmers working on primitive systems almost 
starved. P. Kropotkin, in "Fields, Factories and Workshops," 
cites instances of crops of 80 bushels of wheat to the acre. Under 
special conditions, the yearly food of a man, about 8^ bushels of 
wheat, has been obtained from less than a twentieth of an acre, 
which is an equivalent to over 170 bushels to the acre. Thirty 
tons or 1,120 bushels of potatoes have been dug in Minnesota from 
one acre in one single year. The Island of Jersey, in the British 
Channel, is famous for market gardening. Kropotkin gives the 
wonderful results obtained by a single gardener, with the help of 
36 men and boys, on 13 acres, "equivalent to what a farmer would 
usually obtain from 13 hundred acres of land." He shows how 
even a well populated country, like England, without reducing the 
area devoted to other industries, could amply feed herself from her 
own soil, independent of all food importations, except tropical 
produce. 

In this way the population of the earth could be increased ten- 
fold, twenty-fold, a hundred-fold and more, without having to fear 



8 THE FXONOMIC AND SOCIAL PROBLEM. 

Starvation. Which shows how little Malthusianism, the fear that 
population has the tendency to outgrow the means of existence. 
need trouble us in a time which has no more vexing problem than 
how to keep back production, because the supply in our markets 
show an increasing tendency to outrun the effective demand ; i. e , 
the demand backed by purchasing power. Notwithstanding this, 
prominent economists (John Stuart Mill, for instance) let the bug- 
bear of overpopulation run through their works, everywhere ap- 
pearing as the main danger and the inevitable outcome of any 
improvement. 

How enviable were our forebears with their simple problem of 
poverty through lack of productive power! How different and 
difficult a problem is this which faces us, want through a teeming 
productivity ; misery appealing to inexhaustible sources of wealth ! 
What disposition can he made of it until the key to the well-filled 
storehouse can be found? And the key must be found, or our 
civilization is doomed. 

To help us m our task let us make use of a familiar artifice : 
let us transport ourselves to Robinson Crusoe's Island and there 
present the case free from confusing side issues. 

Robinson Crusoe, on his island, had to work all day to satisfy 
his needs. When he got Friday to work for him, things began to 
improve. He got a little leisure once in a while, and could think 
of producing articles of luxury. More slaves were procured. The 
result was complete exemption from work and a greater amount 
of luxury for Robinson, while the slaves had to work all day long 
with their primitive tools to provide this luxurv and the necessary 
means of .Subsistence for all. Often the men suffered want. That 
was the social problem of the past. A ship arrived brmging them 
all the tools and machines which technical science has given to 
civilized humanity. Very soon the slaves learnt how to use them. 
Their productive power increased immensely Where formerly 
the work of thirty slaves, and that of their families, was necessary 
to provide the entire colony with clothing, a smgle producer was 
sufficient now, and yet everybody was clothed better than before ; 
for the cotton gin, the spinning jenny, the improved weaving-ma- 
chine, and other inventions of the same kind, so much facilitated 
the work for the one worker, that he was enabled to achieve more 
than a hundred could before. Great progress was also made in 
agriculture, in bread-making, house-building, and, in fact, in all 
industries, which before had been carried on by hand. Everywhere 
hands could be spared, and yet there was a larger production than 
before, so that all could live in abundance. The imemployed work- 
ers could now produce articles of luxury, which before could not 
be obtained. Furniture, carpets, table services, and jewelry, works 
of art of all kinds were made — in fact, all such things as the settlers 
could wish for. In time, machines and tools, as well as methods 
of production, improved more and more, so that workers in all 



A PROBLEM AND ITS SOLUTION. 9 

branches could be spared. What did it matter? A great many 
.more articles of luxury were invented and provided. One of the 
slaves, who was very talented, entertained the company with musical 
and theatrical performances ; another wrote books ; others built 
pleasure carriages and yachts, etc. The .general well-being increased 
continually with the increasing facility of satisfying every wish, and 
the labor time was reduced all around. 

All this was very good until one day Robinson got up in bad 
humor, and gave the order to stop the general good living of the 
slaves, which did not please him. "He alone had a right to enjoy 
all those luxuries which everybody had been partaking of ; and the 
slaves ought to be satisfied if they got enough to eat and to drink, 
and had protection against wet and cold. All indulgence beyond 
this point only made them lazy and vicious." From that day the 
slaves were forced to live accordingly. 

A week after this, when Robinson took a walk, he saw a great 
number of slaves standing about, doing nothing. He angrily called 
his head man, and gave him strict orders that only those who worked 
were to eat, and have clothes and lodgings. He was perfectly 
astonished when, some tinie after this, the head man came to tell 
him that a number of the men were dying of want. 

"Are you mad?" Robinson asked him; "has not the island got 
more of all the good things which man needs, than we could wish 
for, and can we not produce as much more as we like? Are there 
not victuals enough? Are we short of clothing or of houses?" 

"On the contrary," the head man humbly replied, "we are forced 
to build new store-houses, because the old ones are filled to the 
top wath food and clothing, and a great many of the dwelling-houses 
are empty." 

"Well?" asked Robinson, whose astonishment increased. 

"Yes, sir, that is all right ; but you ordered that only those who 
work are to be fed, clothed and housed." 

"Certainly ; and that w as only right. Why don't the lazy fellows 
work?" 

"Because there is no work for them." 

"No work?" said Robinson, more and more astounded, and feel- 
ing his head to be sure that he was not dreaming. "No work? 
Are you crazy, my man?" 

"No, sir," replied the head man, who felt offended. "I have 
got all my senses about me, and should be very grateful to my 
master if he would show me what work I am to give the men. In 
the brewery, to begin with, three men were employed who had 
plenty of work in providing the beer for our people. Since your 
lordship has forbidden this luxury, so that only the beer for your 
table has to be brewed, I had to take away two of the brewers, 
and the third is only busy one-tenth of his time, so that he is also 
doing the work of others, who consequently are out of work now. 
It is the same with the people who made the carpets and all the 



lO TH1-: KCONOMIC AND SOCIAL PROBLEM. 

Other articles of luxury. Your lordship is abundantly provided 
for, but the others are not to have any ; so I have to take the work- 
men from their work of production." 

Robinson learnt a great lesson that day, which our economists 
and statesmen, as it seems, have yet to be taught; a lesson which, 
in fact, we ought to ponder over, if we don't want it driven home 
to our minds some day in a fashion we shall hardly relish ; the 
lesson that zue cannot produce if ive do not consume. 

In order to simplify matters I made the workers of the island 
Robinson's slaves. To make him the owner of the land, whose "free" 
inhabitants were his tenants or wage-workers, would merely com- 
plicate the relation, without changing anything in the final result. 
They are just as dependent on Robinson if they cannot get away 
or if emigration only means the exchange of one Robinson for 
another. They are what Robert Hunter calls "wage-slaves whose 
owners have been freed from caring for them when sick or unem- 
ployed." 

Robinson would only employ them or let them have land when he 
needed their products or their labor. Under the original primitive 
condition he needed all of these products which they could spare 
after providing for their own sustenance. Then there was plentv 
of work for all. There was no question of overproduction and 
want of employment in those days ; it was "the good old time," 
when all went well as long as nature behaved, men kept the peace, 
and master or landlord was not too harsh and exacting. 

The trouble began only when modern improvements became 
accessible, when each worker could easily produce ten times as 
much as before, and when Robinson would not allow their consump- 
tion to keep up with their increased productive power, while his 
own consumption could not be forced up sufficiently to take care 
of the balance. Then the workers starved because their work was 
too productive, in which case it proved immaterial whether this 
starvation was due to non-employment or inability to obtain land, 
and whether overproduction or overpopulation was looked upon as 
the cause. 

They were in the position of men athirst, yet at the same time 
drowning in rising waters ; rising, because the poor fellows were 
not allowed to use the water for their own needs. They had been 
much better ofif before the flood rose, at the time when pumping 
procured just enough water for daily use; because then the owner 
of the precious liquid had to let them have enough to keep them 
alive ; for dead men could not pump any water for him. 

This misery-producing effect of abundance under monopoly, the 
key to the modern social problem, is so little understood, that before 
we proceed let us consider another object lesson. 

Let us suppose a group of one hundred free workmen and one 
employer. The one hundred workers are producing all necessaries 
and luxuries, each one having his speciality; the employer gets one- 



A PROBLEM AXn TTS SOLUTION, II 

tenth of all they produce. Each worker will thus have only nine- 
tenths of what he produces ; the employer will get the production 
of ten workers. The question whether the work of supervision 
and organization, and perhaps of invention, accomplished by him 
is worth as much as he gets for it, and whether through the em- 
ployer's work every worker, in spite of his giving up one-tenth, 
gets more wealth than he would without the employer's manage- 
ment, is one of no importance in regard to the question before us. 
All we want to know at present is whether the employer's con- 
fiscation of one-tenth of all the wealth produced will in any way 
interfere with free exchange. It evidently will not, whether he 
consumes his share of Avealth or puts it aside for future -consumption. 

The workers, instead of, exchanging the product of a full day's 
work, only exchange that of nine-tenths ; the employer takes the 
balance, and everybody has full work all the time. 

Let us suppose, now, that the productiveness of labor by means 
of inventions increases ten-fold, a too moderate estimate, if we 
compare to-day's results with those of the Middle Ages. Let us 
further suppose that wages — that is, that part of the product left 
to the worker — have quadrupled in that time, which is far from 
being true. In what ratio will the share of the employer have 
risen, if he gets the balance? P is the product, of which formerly 
W (the workers) enjoyed nine-tenths, and E (the employer) one- 
tenth. W had together 90 P ; E 10 P. Now W enjoy 4 X 90 P 
= 360 P, and the total of production being 1,000 P, E will get 
the balance, or 640 P. 

Let us suppose that his needs have increased ten- fold ; yet his 
income has increased sixty-four-fold. 

We might consider it unjust that one man should get so much, 
and others so little. We might reply to statisticians like Giffen, 
who exultingly point to the increase of the workers' incomes as a 
proof of their increased prosperity, that their relative income, in- 
stead of having quadrupled, has decreased 60 per cent., if we take 
into account the increase of productive power. But all this would 
have nothing to do wi^'h the circulation of goods. Every worker 
Avould be able freely to exchange his products with every other 
worker, and there would be no want of work for any. Whether 
E takes his lion's share in articles of consumption, or whether he 
prefers taking it in new tools and machines, by which he further 
increases the productiveness of labor, is immaterial. The latter 
forms of investment might be of greater advantage to the workers, 
because it is not impossible that a small part of the increase of 
wealth due to new machines would fall to their share. But even 
supposing that it only increases the income of E, if could not do 
them any harm, so long as E continues to invest his surplus in the 
old way. But let us suppose, now, that E is the owner of all the 
available land, and by that agency, of all the forces of Nature, all 
its accumulated treasures, without which work is impossible — and 



12 Tup: kconomic wn soci.xr, t-rotilrm. 

we have to make such a supposition, as otherwise there would he 
no earthly reason why the workers should not have left their em- 
ployer as soon as his share exceeded the value of his services. They 
would very soon have made for themselves as g-ood machines as 
they had made for him. Let us further suppose that E made u]j 
his mind that he had machines cnoup^h, and did not want an\ 
increase of luxuries for the time beino-. A new feature of the 
problem would in this case present itself which had not been ob- 
served before. There would no lonj^er be work enou.t^^h for all 
the workers. They would like to continue as before, working full 
time and exchanging- with each other the products of their work, 
giving the lion's share to E ; but E will not let them have the use 
of natural opportunities any longer than he needs their services, 
which they furnish in payment. One-half of the tribute they are 
in the habit of paying is all he needs, and the natural consequence 
is that half of the work will be all he requires, and all he allows to 
be done on his land. He now uses the rest of the land as a deer 
park. There being no other way of going to work than by using 
E's land, our workers will have to work half time, though they 
would be happy if they were allowed to make use of their leisure 
to produce for themselves the goods they are so much in need of. 
Naturally E only pays them half wages for half work. Very 
soon fiftv of the workers will come to E and propose to him to 
work cheaper than the others, to gave him a larger part of then- 
products, if he will allow them to work full time. E accepts, 
and from now on there is no more work for fifty of the workers ; 
for the remaining fifty do all the work, and leave a larger share 
to E than the hundred left him before. Let us suppose that E 
increases his consumption fast enough to use up the new savings 
he makes in this way, as otherwise there would not be full work 
even for the fifty cheaper workers ; but things do not rest here. 
The fifty unemployed ones, pushed by hunger, finally underbid 
their former co-workers, and get the work themselves, or rather 
forty of them get it; for they work so hard, long, and cheap now. 
that E gets as many goods out of them as before out of the fifty : 
and since he does not need any more goods for the present, there 
is only work left for forty. These forty, reduced to starvation 
wages by their underbidding their former friends, call in the help 
of their wives and children. By these means they begin to get 
along a little better, until the thereby increased production becomes 
too much for E. who consequently dismisses ten of the party. 
The unoccupied reserve of workers amounts now to the number 
of seventy and their families. Want drives them to underbid the 
thirty, who with their families are working overtime to make a 
decent living. Finally a man working with his whole family gets 
no more for fifteen hour's work than he formerly got alone in 
eight hours. "There is no help for it." say the lawgivers thev 
appeal to, "work is slack. Emigrate (to other countries, where 



A PROBLEM AXD ITS SOLUTION. 



13 



the same state of tliino-s exists) or else go to the poor-house! We 
cannot fight against the laws of supply and demand ''' 

The workers, not knowing how to strike at the root of the evil, 
ask for a maximum working day of eight hours, for a prohibition 
of the employment of married women and of children, while others 
even want the State to fix a mniimum of wages. When the law- 
givers of all parties hear this, a terrible noise is raised against 
these "socialist and anarchist agitators/' who want to sap the foun- 
dations of our prosperity, the liberty of each man to work as long 
as he pleases, and to sell his work and that of his wife and children 
to whomsoever and as cheaply as he likes. They ask the workers 
how they can afiford to lose the wages of overtime and the earn- 
ings of their wives and children, when, even as it is, they hardly 
know how to make both ends meet. 

In this way things get worse every day. If a certain part of the 
unemployed did not set up as superfluous middlemen, thus artificially 
adding to the cost of goods by waste in the work of distribution, 
and thus forcing E to spend a little more, and to occupy more 
workers ; if others, by becoming criminals and paupers, did not 
make more work, especially by compelling E to employ some of 
the men as policemen and soldiers, thus reducing the army of the 
unemployed; if the employers in different countries did not from 
time to time quarrel amongst themselves, and lead the unem- 
ployed workers mutually to kill each other, thus reducing their 
numbers and destroying the overproduced wealth; if these and 
similar means of decreasing overpopulation and overproduction 
were not adopted, there would have been a terrible catastrophe 
long ago. 

We have seen now that the cause of the evil is that E monopolizes 
part of the workers' product and does not take this share as fast 
as they are ready to deliver it, preventing them at the same time 
from working further until he feels ready to accept the part due 
to him. We have further seen that the power of thus impeding 
production is given to him by the ownership of natural opportunities, 
in a word, of Land. 

But the monopolization of the land by a minority is not the only 
cause of our abnormal circumstances. The division of labor neces- 
sitates an exchange of products Where the stage of primitive 
barter is passed, the exchange of products demands a medium of 
exchange, and if this medium does not adapt itself elastically to 
the demands of the market, a new calamity arises which remains 
to be illustrated in an other phase of our island's history. To avoid 
confusion, private land ownership and its effects are entirely elim- 
inated in this illustration. 

Things were getting rather turbulent on Robinson's Island. It 
was not for the first time. There had been a revolution before, 
when the people would no longer put up with Robinson's land 
monopoly. He had owned the whole island, and only those who 



14 TIIK ECONOMIC" AM) SOCIAL PROHLKM 

obtained land from his lordship could live on the island, and coul.l 
only live on what Robinson was gracious enough to leave them ot 
the fruits of their labor, which was not much. But some agitators 
had managed to get a foothold in the island, and their teachings 
opened the people's eyes. They began to see that they had as miu:h 
right to the land as Robinson ; and that Robinson was onl\ one 
weak man, whereas the islanders numbered thousands ol strong 
men ; that they only had to will, and Robinson would have to obcv 
So they willed common land-ownership, and the land was owned m 
common. It was taken without compensation, but the people were 
generous enough to pay Robinson for improvements, althcmgh 
they themselves had made the improvements in part payment 
of their rents. They consented to give him bonds to the full 
amount of these improvements, on which they agreed to pa\ a 
moderate interest up to the time when thev could redeem them 
This would not have taken very long, because the inventive spirit 
of the islanders had immensely multiplied their productive power, 
and they were enabled to put aside in a few vea'rs wealth enough 
to pay the whole of their debt to Robinson, capital as well as 
.interest. 

Robinson foresaw that this new state of affairs would not at all 
suit him It would have thrown upon his hands immense stores 
of commodities which he did not need, and which he could not 
dispose of unless he took in exchange other commodities equally 
useless to him at the time. He could only eat five meals a dav ; 
any victuals in excess would soon have spoiled He could not 
wear more than one suit of clothes or one pair of boots at a time, 
and if his stock of clothing was too large, the moths would eat it 
He might leave the commodities in possession of his debtors until 
he needed them, some time during the balance of his life or the 
life of his children ; but he wanted interest, and the people were 
not fools enough to pay it, having no need of the goods For they 
had free access to the land, and so their labor easilv created all 
the other means of production necessary to supply plenty of every- 
thing. 

But Robinson was a sly old humbug who knew a thing or two. 
Progressed division of labor long since had called forth a demand 
for a convenient means of exchange, and finally a scarce metal, 
called gold, was in preference used for that purpose Long 
before the revolution, which Robinson foresaw, he had induced the 
islanders to pass a law that debts could not be paid in any product 
of labor, but only in that one scarce product, the yellow metal, 
called gold. While he owned the island he had made the people 
bring to him almost all such metal found by them, and at the time 
of the revolution he possessed nearly all the gold on the island 
When improvement bonds were issued, capital and interest were 
made payable in gold To obtain gold, people had to sell their 
products of labor. Robinson was practically the onl\ gold owner 



A PROBLEM AND ITS SOLUTION. 1 5 

r.nd he was, besides, over-supplied with goods of all kinds This 
resulted in a mad competition for Robinson's gold, through which 
prices and wages went down most fearfully. The more these went 
tlown, the more goods and labor-days were needed to pay Robin- 
ion's dues; and as Robinson's wants were limited, the excess of 
supply over demand increased all the time. I do not mean real 
c'.emand, for the people had an unsatisfied and urgent demand for 
rll the goods in the market; but they had no gold with which to. 
pay for them. Most of the gold they did receive had to be paid 
again to Robinson for interest, who spent only a part of it. The 
; urplus he lent to those islanders who could give him the best 
recurity. The interest on these nevv^ debts again went to swell 
Robinson's income, and consequently the unconsumed part of it. 
This meant that an increasing gold debt had to be paid by the 
people, who, in order to obtain the gold, tried to sell their products 
in a market in which the great gold monopolist spent a continually 
diminishing fraction of his gold income, and in which the people 
were less and less able to make up for the deficit by their own pur- 
chases, because more and more of the gold they obtained for their 
sales to Robinson had to be paid back to him for interest, and so 
could not be spent on purchases. A terrible struggle ensued. The 
people did their best to save gold by improving their tools and proc- 
esses of production, but every such improvement only made matters 
worse. As it cheapened prices and increased the savings of Robin- 
son, it narrowed the market and rendered the chances of employ- 
ment more precarious, especially as the taxes were payable in gold, 
and those who did not pay their taxes were finally driven ofT their 
land. 

I have intentionally magnified the predicament of the islanders, 
in order to put into full light the efifects of a money liable to 
monopolization ; but I am fully aware that where land is freely 
accessible, even money-debts of the kind described cannot produce 
such extreme misery. Unfortunately, the question how much of 
the evil would remain after land nationalization was accomplished, 
if unaccompanied by a thorough currency reform, is merely an 
academic one, for in our real world both Money and Land-monop- 
oly are carrying on their nefarious work jointly, helped by their 
progeny, Interest. 

Their evil work, however, is dependent on the development of 
production, just as a breach in a dam may remain harmless until 
the level of the water is raised beyond a certain height, a height 
which might otherwise be desirable ; for if there were no breach 
it would enable the river to turn water-wheels, float ships, and 
irrigate fields, instead of destroying lives and wealth. In a like 
manner, the rising stream of production would prove a blessing 
were it not for the breach in the dam : the monopolies which make 
it leave its natural bed, i. e., a consumption, which keeps pace 
with production. This breach causes the destructive inundation of 



l6 THE ECONOMIC AND SOCIAL PROBLEM. 

overproduction, or rather underconsumption, and consequent under 
production. Every new machine, every improved process ot pr(j- 
duction and distribution raises the level of the stream, and thousj^li 
beneficial in itself, under the influence of monopoly it becomes a 
destructive a.s^ency. 

In this light we have also to look at the Trusts. Judged bv them- 
selves, they are meritorious organizations. They diminish wasteful 
competition and they save labor, exactly as the railroads and tiie 
steamboats do. Under Land and Money-monopolv. however, thev 
are made to become as great a curse as the other labor-savmg 
inventions, as the power-loom and the linotype. So the fight agamst 
the trusts closely resembles that agamst machinery, once waged by 
labor. Both fights are equally vain ; the wheel of progress can 
never be turned back by the means which ignorance employs 

The road over which reform moves lies neither m the destruction 
of machines, factories, or trusts, nor m their nationalization ; it lies 
in their democratization, their gradual appropriation by the workers 
of all classes, voluntarily co-operating; and the purpose of this book 
is to show how this can be accomplished by certain fundamental 
proceedings. 

The most important one, the Restoration of the Land to the people 
as a whole, is discussed in Chapter H, which aims to show how 
easily this great reform can be efifected on the basis of justice to 
all classes, without having recourse to the confiscatory methods of 
the .so-called Single Taxers Chapter III takes up the Money 
Question, showing how a fundamental currency reform could be 
gradually introduced without interfering with existing obligations 
and contracts. Chapter IV deals with the Circulation Problem, 
including international balances and tariffs The nature of Capi- 
talism and the part played by Interest in the great problem, form 
the subject of Chapter V. while Chapter VI, entitled "Democracy," 
takes up the political weapons required by the people in the fight 
for freedom and the accomplishment of social reform. The work 
which can be done, parallel with the political one. by private 
initiative and, by co-operation will be discussed in Chapter VII. 
Chapter \TII discusses "Trusts and Socialism," while the con- 
cluding chapter takes a parting look at the battle field. 

While the most pressing questions are being treated, a new science 
of political economv arises before us; a real science, in which results 
corres]x:»nd to promises ; because it is built on the eternal foun- 
dations of justice and truth. At the same time proof is furnished 
that a peaceable evolution is attainable on such foundations, and that 
otherwise a violent revolution is unavoidable T hope I have suc- 
ceeded in giving the light touch demanded by the average reader, 
without, on the one hand, sinning by superficiality, or. on the other, 
falling into that jxinderosity which, unfortunately, disfigures most 
works on economics. 



LAND. 17 



CHAPTER II. 



LAND. 

"Place one hundred men on an island from which there is no escape, 
and whether you make one of these men the absolute owner of the other 
ninety-nine, or the absolute owner of the soil of the island, will make no 

difference either to him or to them Our boasted freedom 

necessarily involves slavery, so long as we recognize private propertv in 
land. Until that is abolished, Declarations of Independence and Acts of 
Emancipation are in vain. So long as one man can claim the exclusive 
ownership of the land from which other men must live, slavery will exist, 
and, as material progress goes on, must grow and deepen !" {Henry George 
in "Progress and Poverty.") 

Land differs from other human pos.sessions ni five particulars: 

1. It is a product of nature, the stock of which is limited. 

2. It is indestructible. 

3. It cannot be carried away. 

These are three important qualities which make land the safest 
investment in the world, for there isno limit to man's products; 
they are perishable and most of them can be carried away by 
thieves. 

4. Land can produce wealth without human labor. T well know 
that this is ag-ainst the theories of orthodox political economy, 
asfainst one of its useless and positively harmful distinctions, accord- 
ing to which wealth is a product of human labor and which refuses 
to accord to nature's work, unaided by that of man, its wealth- 
producing power. It is this kind of sophistry which has given to 
political economy the title of the dismal science. Why should a 
tree, never touched by human hands and sokf on the stump, have 
less title to the term wealth than the board sawn from it? Or do 
we call this tree a product of labor because man has created a 
market ^r it? Then land, too, would be a product of human 
labor, because merely the presence of man has given it a market 
value. Though nature can produce wealth without the help of 
man, man cannot produce wealth without the help of nature, and 
in most cases nature does the lion's share. Is it not pitiable to 
call the steer of the pampas the product of human labor, merely 
because one man has branded him to prevent his appropriation by 
other men ? I shall return to this point further on. 

5. Land is indispensable to human existence. Not only by co- 
producing all our food and raw-materials, but as an abode. 

These five qualities of land here enumerated render it essential to 
deal with it differently from any other of man's possessions. Its 
limited quantity gives to its possession the character of a monopoly ; 
its indispensability makes the monopoly a dangerous one. 



IS THE LCU.NUMIC ASD SOCIAL PROBLEM. 

This character of land makes its appropriation by individuals 
intolerable. Alan has a sacred right to life and liberty ; and, a;. 
neither of those rights can be enjoyed without access to land, land 
nionupol) is a den.ial of nian"s sacred rights. 

JUit can we, speak of land monopoly where there is no entail, wh^re 
free trade in land exists, which is said to have the tendency of 
bringing it into the hands of those who put it to the best use, ai 
the same time producing the most extended division of land ? 

History teaches the very contrary, to wit, that free-trade in lar.d 
inevitably leads back to concentration, as brooks and rivulets fina'.ly 
help to form the ocean. 

The best proof of this fact is supplied by the history of France, 
since that memorable night of August 4, 1789, which overthrew 
feudalism and introduced a century of free-trade in land. 

Toubeau, a French author best known for his advocacy of in- 
tensive agriculture in "La Repartition Metrique des Impots," drew 
attention to some surprising statistical data regarding the division 
<jf the French soil, in a paper which first appeared in the Phllosophie 
Positivistc of July and August, 1882. Its title is "Le Proletariat 
Agricole en France depuis 1789, d'apres les Documents Ofhciels." 
Who would have believed, without these official figures, that onl\ 
one-tenth of the French soil is owned by peasant proprietors, by men 
who cultivate their land by their own work ? No doubt most of the 
members of the 1889 International Congress of Land Reformers — 
of which Toubeau was elected secretary — learned this fact for the 
first time from his lips. 

In round figures, the official "Statistique Internationale de I'Agri- 
culture de 1873" — from which Toubeau took his data — gives 49 
million hectares (i hectare = 2^^ English acres) as the inhabitable 
surface of France, after deducting the area taken up by rivers and 
lakes. The area covered by forest, heath, swamp, grazing land, 
and wilderness amounts to about one-third of the whole = 16 million 
hectares. Houses and gardens take another million. Another third 
=: 16 million hectares is leasehold property cultivated by tenants. 
Of the remaining third, 12 millions are taken up by large properties. 
They represent 60,000 farms of 200 hectares on the average. This 
part of the soil is cultivated by laborers. For the peasant pro- 
prietor 4 million hectares are left, to which we may add a certain 
amount of the grazing land, tif the gardens, and the house area, 
say 1 million hectares. We thus arrive at the stupendous fact that 
in the paradise of the peasant proprietor only one-tenth' of the soil 
belongs to men who work it with their own hands. The number 
of these properties is 2 millions, with an average surface of 2^ 
hectares. This number seems to be in contradiction with the statis- 
tical tables, which give us 14 million properties. Now, one-half of 
these 14 million properties pay less than 5 francs land-tax, and on 
3^ or 4 million of these the tax cannot be collected at all, either 
l)ecaus(' the owners are insolvent or because the properties are so 



LAND. 19 

?mall that the expenses of collection would be greater than the 
amount of the tax. In fact, the government statistician realizes that 
a great number of these so-called proprietors are such only by 
r.arae. He says: "Half of the land-owners _possess only a small 
house with a very modest garden, sometimes an insignificant portion 
of an old common, or an undivided portion of a yard, open space, 
passage, or building-lot. In this way, in a great number of cases, 
in reality they have only the name of proprietors." Four million 
more pay only a land-tax of from 5 to 20 francs, and therefore their 
holdings are so insignificant that their owners cannot make a living 
off their land. Toubeau then deducts the larger owners, the towns- 
people, etc., and thus arrives at his figure of 2 million families who 
subsist on their own land by their own labor. 

The number of 3^4 million holdings given in the official statistics 
shows that if Toubeau erred, he did so on the right side; because, 
of these 3^ millions, quite a number often belong to one proprietor, 
and i}i million of them are worked by tenants, while the balance 
of less than 2 million includes the large properties worked by 
laborers. Anyhow, the number of peasant proprietors does not 
affect the quantity of land owned by them, which — as Toubeau 
shows — is not over one-tenth of the French soil, and here we have 
to consider that a man cannot be called a proprietor in the full sense 
of the word if a great part of his property is mortgaged, and thus 
practically belongs to the mortgagee. Under the French system 
of an equal division of inheritances the partition of the small prop- 
erties is continually progressing. If no immediate partition of the 
land takes place one of the children takes over the land, while the 
others take a mortgage for their share, which then is mostly sold 
to outsiders. This only means deferring the partition in many cases 
where land has finally to be sold to satisfy the mortgagee. While 
the small properties get thus subdivided through inheritance, the 
same cause has a tendency toward increasing the large properties. 
Rich people are in the habit of leaving wills, and for one case where 
such a will divides a large real estate, because there are not enough 
other assets to satisfy all the heirs, there may be ten cases where 
small properties which come into the market are bought by some 
rich man to enlarge his neighboring domain.. 

Toubeau's opinion that actually the peasants owned more land 
before the French Revolution than they do in our time is justified 
by a passage in Taine's "Les Origines de la France Contemporaine. 
L'ancien Regime." p. 453 : "A^ers 1760 un quart du sol, dit-on, 
avait deja passe aux mains des travailleurs agricoles." ("Towards 
1760, it is said, that one quarter of the soil had already passed into 
the hands of the agricultural workers.") 

On the preceding page Taine describes how many domains passed 
into the hands of merchants, lawyers, rich townspeople ; a process 
also going on in our time wherever land can be freely bought in 
the market. We have seen the obvious reason, Land is indC' 



20 THE ECONOMIC AM) SOCIAL PROBLEM. 

structible, whereas the products of labor are more or less short- 
lived. Neither can land be carried away by thieves, like most of 
the thini^s produced by man. While almost ail products of human 
labor decrease in value throu.s^h the lapse of time, unless new labor 
is added, the value of land, as a rule, increases. Fallow land becomes 
richer in chemical components. Trees yielding- fuel and timber 
grow spontaneously on it. Anyhow, its price rises under normal 
conditions through the greater demand that follows technical 
progress and with the growth of population and wealth; rents 
become enhanced. 

The verv reverse takes place with most products of human labor. 
Independent of the destructive effects of time on them, the price 
at which their equivalent can be produced falls continually, owing 
to our progress in the arts. As is to be expected under such con- 
ditions, the rich and knowing investors give the preference to land, 
and this raises still more its selling price. In this way, the rate 
of interest at which rent is capitalized into the selling price of 
land falls so low . while the selling price becomes so high, that the 
worker who needs land prefers to rent it. or is forced to do so, as 
he has not got the means wherewith to buy. The little capital he 
possesses is wanted in his business, and anyhow, it cannot be in- 
vested at the low rate of interest with which the rich landowner 
is contented.* Or, if he buys, and borrows part of the purchase 
money on a mortgage, usuallv the rate of interest of this mortgage 
is so much higher than the net rate yielded by the land, that a two- 
third mortgage generally swallows the whole of the rental value. 
This explains how. even in a country like France, where a little 
over a huntlred years ago the Revolution threw a great part of the 
feudal property into the market, the number of tenants and laborers, 
who work on other people's land by far exceeds that of the men 
who work their own freeholds. It is even more astonishing that 
the same fact obtains in the I'nited States of America, a country 
most of whose land— within the memorv of the living generation — 
was practicalK- thrown (>])(.n. free of cost, to the hardy pioneers. 
Let us take our figures from the census of 1900. 

If we go as far down as loo-acre farms, we may suppose we 
have reacherl the utmost limit where an .\merican farmer can work 
the land with his own hands ar.d those of his family. In this case 
onlv one-sixth of the cultivate.! aci comes into consideration. Of 
this we have to deduct that poriion which is worked by tenants, 
to obtain the area worked by peasant-proprietors. .Xs the farms 
worked bv tenants figiu'e up to about 40 per cent, of the whole area, 
onlv ten per cent., (U one-tenth f)f the whole area, remains for the 
peasant-proprietor 

In case 100 acres should ne considered too low a limit for this 

* Dc Lavergnc. the enemy of peasant proprietorship, speaks of: "That turn- 
ing aside of capital fmni tJie cultivation of the land to its purchase, which is 
one of the chief vices of dur PVench rural economy." 



LAND. 21 

class of farms, we must not foroet that, on the other hand, the mort- 
gages have been left out of calculation. As the mortgagee prac- 
tically owns the land, whose rent he collects in the shape of mterest. 
to the proportion of the mortgage, thi-^ takes ofif a larger percentage 
of land from the freely-owned area than the inclusion of certain 
farms above lOO acres could add to it, especially as the mortgages 
stand at a very high rate of interest. 

The tendency towards concentration of landed property in this 
country is also evidenced by the fact that from 1870 to 1900 the 
smaller farms under 100 acres only increased from 2,075,338 to 
3,297,404 ^=. 60 per cent., while those above 100 acres increased from 
584,647 to 2,424,354 = 413 per cent. Those above 500 acres 
increased from 19,593 to 149,686 = 763 per. cent., or almost eight- 
fold ; about 13 times more than the farms below 100 acres. 

Let us now take the case of a still nev^-er country, usually presented 
as ?, model by the followers of Henry George. In New Zealand the 
number of occupied acres in 1904-5 was 36,511,154, of which 
27,013,683 were in holdings of over 1,000 acres, 29,142,776 in 
holdings of over 640 acres, and only 991,542 in holdings up to 100 
acres, inclusive. The holdings over 1,000 acres numbered 4,211, 
those over 640 acres 6,820, of a total of 68,680 holdings ; which 
means that one-sixteenth of the holdings (belonging to one-seven- 
tieth of the people) embrace three-quarters of the occupied land. 
Of these 893 holdings, or one seventy-seventh of all the holdings, 
belonging to three per cent, of the population, embrace as much 
as 56 per cent, of the total occupied land. But if we want to 
get at the number of peasant properties wc have to consider that 
of the 36,511,154 acres only 16,392,221 are held as freeholds, 
3,574,038 are leased from private individuals or public bodies, 
1,667,676 are leased from natives, and 14,877,219 are held from the 
Crown under different tenures. The mortgage debt amounts to 
37 per cent, of the value of the land assessed, without improvements, 
or 23 per cent, of the value including improvements. The interest 
rate varies from 5 to 8 per cent. 

If we counted as peasant proprietors all land owners up to 100 
acres we could hardly estimate the area thus owned, after the per- 
centage of indebtedness is deducted, as figuring up to more than 
one per cent, of the occupied area ; and if we go as high as a thou- 
sand acres, because of the prevalence of grazing — and it is almost 
impossible in this case to manage the farm with the owner's and his 
family's unaided labor — we do not arrive at a higher percentage 
than in France : one-tenth of the occupied land. 

That the same state of things prevails also in Australia is indicated 
by the following utterances of an old friend, A. J. Ogilvie, of 
Richmond, Tasmania, meant as an attack on the superstition that 
the desire to own a piece of land is deeply engrained in human 
nature : 

" 'But,' we are told, 'you forget the land hunger. Man naturally 



22 THK I-:C()N()MIC AM) ^(HIAI. I'K(U'.I,KM. 

craves for the absolute owncrslup of the soil he tills, and \vith(JU' 
it loses half the stiiiiiilns to exertion. Me wants to sit under hi-< 
own vine and tig-tree.' 

"Here are three statements rolled into one. Take the last first 
'He wants to sit under his own vine and fig-tree.' 

"True; and the result of your system of absolute ownership is 
that ninet>-nine men out of t)nc hundred can get no vine or fig- 
tree to sit under, and the hundredth finds that the vine and tig-tree 
under which he sits are not his but his landlord's, who charges him 
heavily for the privilege, and this even though he has planted the 
tree himself, and watered it with the sweat of his toil. 

"Year by year, all over the civilized world, the ownership of the 
land is passing out of the hands of the occupier. One man rears 
the fruit, another stretches out his hand and takes it. The very 
institution which you defend as securing to the producer the fuli 
value of liis produce is the institution that compels him to part 
with it. 

"How comes this? 

"Because the unearned increment, though certain, is deferred, 
and falls, therefore, to him w ho can afTord to wait, and who accord- 
ingly waits. 

"Sooner or later the day comes when a mortgage has to be re- 
deemed, or death brings the property into the market, and then the 
man of large and independent means, who does not mind getting 
a low rate of interest for a while in consideration of large profits 
thereafter, easily outbids the working owner, who has to earn his 
living, and must have quick returns. 

"Thus it is that not only is the rich non-occupying owner fast 
superseding the poorer working owner, but the large non-occupy- 
ing owners are also eating up the small ones, and the tendencv of 
the times is for the whole land of the country to pass gradually 
into the hands of a few enormously rich people. 

"We have not got into this second stage yet out here, but we are 
well on into the first. And so inevitably and steadily land is coming 
to belong, not to him who has the best right to it, not to him who 
wants it mo.st, not to him who will put it to the most productive 
use, or even to any use at all, but to him who can afiford to give 
most for it, for the mere purpose of squeezing other people. 

"You ofifer the name, but you cannot confer the reality. We 
withhold the name, but guarantee the reality. 

"For what is the land hunger? 

"It is the natural craving for a permanent home, and for the 
fruits of our labor; and we guarantee both these; you do not. 

"The natural desire of a man is for a dwelling which he can re- 
gard as his home, for sO' long as he chooses to dwell in it; for a 
piece of land which he can cultivate and build upon and improve 
as his intere.st or fancy may dictate, without the fear of a notice 
to quit, and the certainty that when he quits of his own accord 



LAND. 



23 



he can realize the full value of his improvements at the time of his 
retiring. 

"If you say further that all these things shall be his own, you 
are conferring no further privilege. You are only summing up 
the privileges already enumerated in a compact, sweet-sounding 
phrase. 

"That he shall possess his home so long as he chooses to dwell 
in it, his land so long as he chooses to fill it; this is the land hunger. 
But to want to own the land without using it, to leave and yet 
retain the ownership for the mere purpose of preventing other peo- 
ple from using it, except on payment, this is not the land hunger 
at all. 

"Directly a man has lost the desire to dwell in his home and till 
his land, and wants to go elsewhere and live on the rent, he has 
lost the land hunger, and retains only the ordinary desire to make 
money. 

"Therefore, when under these circumstances we require him to 
give up the land, securing to him the value of his improvements, 
we violate no craving of his nature; we only take from him what 
he has ceased to value, the land; and allow him the one thing he 
continues tO' value — his money — to invest elsewhere. 

"Further, it is the nature and not the extent of the occupancy 
that satisfies the land hunger. A home and land enough to afiford 
employment' are all that is wanted for the purpose. 

"The Irishman's poor cabin is as much his home to him as the 
duke's palace to him; and an acre or two satifies the craving to be 
working for oneself, as thoroughly as 1,000 acres would. There- 
fore so long as we leave a man land enough to p-ovide him full 
employment, much more when we leave him enough to employ 
many hired servants, we may take, at a valuation, the broad acres 
on which he merely runs his flocks, without jarring any legitimate 
feeling." 

Even in England, where the feudal system has long held sway, 
where the entail is still the rule, even in England the saleable free- 
hold exists and tells its usual sad history. 

Macaulay, in Chapter III of his "History of England," where 
he treats of the yeomanry, says: "If we may trust the best statis- 
tical writers of that age (1685), not less than a hundred and sixty 
thousand proprietors, who. with their families, must have made up 
more than a seventh of the whole population, derived their sub- 
sistence from little freehold estates. The average income of these 
small landholders — an income made up of rent, profits, and wages 
—was estimated at between 60 and 70 povmds a year. It was 
computed that the number of persons who tilled their own land 
was greater than the number of those who farmed the land of others. 
T have taken Davenant's statement, which is a little lower than 
King's." 

What a change for the worse these figures present! Consider- 



24 TUF, F.coN'mnr Axn sociat- rkonr.EM. 

iug; the difference in the value of money, we must take at least £150 
as the equivalent of the £60 to £70 of two centuries ago Now, 
we certainly cannot go below holdings of 5 acres when we want to 
find men who can make an income of £150 a year from the land, 
and the total number of holdings above 5 acres, and not exceed- 
ing 50 acres, in 1889, was for all England and Wales 203.861. The 
"Financial Reform Almanac," from which I take these figures, 
does not give the number of these holdings which are freeholds; 
but to anyone knowing England, it is evident that only a very 
small proportion of this land is owned by the parties who cultivate 
it. On the other hand, Macaulay may have included holdings above 
50 acres. Erring largely on the right side by compensating the 
two causes of error, we arrive at the conclusion that, in spite of 
an eight-fold increase of population, the number of people who make 
a living on their own land by. their labor has not increased; while 
it ought to be eight times greater. Where, two centuries ago, "the 
number of persons who tilled their own land was greater than the 
number of those who farmed the land of others." it is notorious 
that tenant farming is the rule in the England of 1908. and a man's 
tilling his own land has become such a rare thing that it plays a 
very insignificant part in the English corn yield. 

The gieat scientist Alfred Russel Wallace finds in England the 
same causes at work which I indicated in the case of Erance, in 
"Studies Scientific and Social": 

"It is a favorite dogma of some reformers that all the evils of 
the present day would be got rid of by what they term 'free trade 
in land.' They seem to think that if all obstacles to the sale and 
purchase of land were abolished, if entails of all kinds were forbid- 
den, and the conveyance of land made as cheap and expeditious 
as it might easily be, the obstacle that now exists to the growth of 
a body of peasant proprietors would be got rid of. This notion 
appears to me to be one of the greatest of all delusions. The real 
obstacle to peasant proprietorship or small yeoman farmers in this 
country is the land hunger of the rich, who are constantly seeking 
to extend their possessions, partly because land is considered the 
securest of all investments, and which, though paying a small aver- 
age interest, affords many chances of great profits, but mainly on 
account of the political power, the exercise of authority, and wide- 
spread social influence it carries with it. The number of individuals 
of great wealth in this country is enormous, and owing to the dimi- 
nution of the more reckless forms of extravagance, many of them 
live far below their incomes, and employ the surplus in extending 
their estates. The probabilities are that men of this stamp are in- 
creasing, and will increase, and the system of free trade in land 
would serve chiefly to afford them the means of an unlimited grati- 
fication of their great passion." 

The following verses from "Land and Labor." the excellent 
organ of the English Land Nationalization Society, illustrate in a 



LAND, 25 

happy vein the chances the average EngHsh peasant has, under the 
present free trade in land system, of securing enough land to make 
a bare living on. 

THREE ACRES AND A COW. 

"I hear thee speak of a bit o' land. 
And a cow for every laboring hand ; 
Tell me, dear mother, where is that shore, 
Where I shall find it and work no more? 
Is it at home this promised ground, 
Where the acres three and a cow are found? 
Is it where pheasants and partridges breed? 
Or in fields where the farmer is sowing his seed? 
Is it on the moors so wild and grand 
I shall find this bit of arable land?" 
"Not there! not there, my Giles!" 

"Eye hath not seen that fair land, my child, 
Ear hath but heard an echo wild — 
The nightmare of an excited brain, 
That dreamers have like Chamberlain. 
Far away, beyond the ken 
Of sober, practical business men; 
Far away beyond the sight 
Of men whose heads are screwed on right; 
Where castles in the air do stand. 
Behold the cow and the bit o' land! 
'Tis there! 'tis there, my Giles!" 

Many more proofs might be given that the formation of large 
estates is the inevitable result of free trade in land, experienced 
ever}'where since the times of old Rome, when Plinius found in 
large landed properties the cause of Italy's ruin. 

The contention is made that free trade in land not only brings 
the land into the hands of those who use it to best advantage, but 
that this is to the benefit of the community at large. Facts show 
that neither premise nor conclusion is correct, and that Ricardo was 
right when he claimed that "the interest of the landlord is always 
opposed to that of every other class in the community." The in- 
terest of the landlord is to collect for himself the highest rent or 
net produce attainable. In figuring this rent or net produce the 
expense for labor stands among general expenses, which are de- 
ducted from the gross product to obtain the net product. But for 
the laborer his wages are his own net product, and thus finally all 
gross products resolve themselves into net products of other peo- 
ple. Every cent paid out for machinery, manure, seed, fences, 
cattle, etc., is finally spent for labor of some sort, and is the net 



26 Till': i:c().\u.\;ic and ^^ociai. i-roisij-im. 

product of somebody else. In this way all gross products ar - 
practically all net products, from the point of view of the community. 
The well-being of the people consecjuently depends on the quanui • 
of gross products. 

Take, for mstance, the case of a large proprietor owning 10,000 
acres. If he lets the land to a hundred small farmers, or employs a 
hundred laborers, the gross product of the land may be $100,000. 
while his net income from the rent ob'tained, or from the crop sold, 
after deduction of wages and other expenses, may not amount to 
over $10,000. If he lets the land to a grazier or raises cattle on 
his own account, the gross product may not exceed $20,000 and 
still leave him a larger net amount in the end than he obtained in the 
other case. His preference will naturally be for the highest rent, 
and so only a few cow-boys find employment, where a hundretl 
families might have earned their bread. Which is of greater benefit 
to the community as a whole? The State, the representative of all 
citizens, would probably refuse the higher rent and lease the land 
to the hundred farmers. Leaving all higher considerations asidi 
and looking at it only from the financial side, this policy might 
even in the end yield a larger income to the public exchequer 
through the taxes paid by the farmers and their purveyors, the 
urban producers, who make their clothing, the wire of their fences, 
their furniture and household goods, their machines and their tools. 
Supply and demand are beneficial regulators in the case of com- 
modities that can be produced in any quantity, but not in the case 
of a limited commodity like land. Free trade in land could never 
have found such a number of defenders if it had not been looked 
upon as the best antidote to feudal monopoly; whereas in realit}' 
it merely substituted the plutocrat for the aristocrat, a worse for a 
better master. The capitalist landlord has not been connected by 
a family tradition of centuries wdth the land and its occupiers; to 
him his land is nothing but the equivalent of other investments 
which he gave up for it. Its rent replaces the interest which those 
investments yielded, and he expects his rent to fall in somewhat 
after the quasi-automatic process in which his coupons were cut 
and cashed before he exchanged the bonds to which tliey were at- 
tached, for the land he bought with their proceeds. As he never 
cared who finally had to pay the interest represented by these cou- 
pons, so the tenant of his land to him is merely a rent-paying ma- 
chine, to be exchanged for another, so soon as it does not regularly 
perform its functions. 

This is still more conspicuous where the capitalistic ownership 
is indirectly exercised through the mortgage and, especially, where 
the mortgagee is not a person but a corporation, often one who 
represents thousands of poor people, as in the case of savings banks 
and insurance companies. To these institutions it is a case of mere 
figures. It is no longer a question of one man's relation to his 
fellow-man who works for him; but that of the impersonal capital 



L^MSTD. 27 

to its interest. The right of capital to earn interest seems such a 
self-evident one, that anybody who refuses to pay his interest dues 
is considered as defrauding capital of its rights. Neither can the 
savings bank be blamed for not granting facilities; as it is merely 
the agent of others who have brought their savings. The real 
landlord is yonder poor widow, who has invested her few dollars 
in the bank; or perhaps the farmer's own laborers, who have not 
the least idea where their interest comes from, and dream not that 
they are the oppressors of their poor master, who bitterly refers 
them to his own miser)^ when he refuses to raise their wages. A 
remarkable illustration, this, of the so-called ''class ivar" ! 

But what other system is better adapted to bring the land tO' the 
most rational use, if free trade in land, instead of accomplishing 
this purpose, has the .pernicious efifect of concentrating possessions 
in the hands of the few tO' the detriment of the many? The reverse 
of free trade: entail? Perhaps, if rationally organized: i. e. so as 
not to keep the land in the possession of the exploiter, but tO' in- 
sure permanent possession to the workers. If feudalism was the 
father of aristocratic entail, the Germanic Mark and the Russian 
Mir might give us a precedent for democratic entail. Of course, 
periodical re-allotments, only possible under a primitive system of 
cultivation, would not be practicable under scientific farming. Nor 
are they essential to Mark or Mir, of which they rather are the 
greatest obstacle. An allotment which in place of his well cul- 
tivated land, assigned to an industrious farmer the neglected field 
of a thriftless neighbor, obviously discouraged the better man and 
had a tendency to bring him down to the other's level. 

A slight change in the American Homestead Laws would have 
provided an improved "Mark" with all the advantages of the old 
plan without its inconveniencies. Let us suppose that this country 
had added the following simple clause to her Homestead Law : 
"This land is to remain freehold property of the settler during his 
life and that of his descendants, provided that he or they occupy 
the said land themselves. The title does not include the right of 
sale or lease. Whenever personal occupation of land by the settler 
or his descendants ceases, the land reverts to the previous owner : 
the United States, with full right of free disposal, free of any 
charge but the price originally charged to the settler, plus the pay- 
ment for the improvements made .by the dispossessed party at their 
assessed value-." An inventor who enriches the world with a prod- 
uct of his brain has its ownership guaranteed for only 17 years; 
why should the, first occupier of a piece of land, which is not his 
product, have a right of eternal possession, the right to use and 
abuse it, also to cede this right to others? 

Though it might have had a. deterrent effect on mere speculators 
holding land for a rise, and meanwhile, like dogs in the manger, 
keeping bonafide occupiers at a distance, such a law would not have 
held oiff a single real settler. On the contrary, the increase of free 



28 Tlin: ECONOMIC AND SOCIAL TROBLRM. 

land at their disposal, bc^idts the effect on .s^encral social conditions, 
cfMicentration of wealth in particular, would have brought over the 
best class of immigrants from the whole world. Even if the whole 
of our present population were farmers, there would still be avail- 
able lOO acres for each family on the averag^e, if we take only the 
occupied area into account. Of course, the State would not re- 
allot homesteads that come back into her possession without a just 
compensation for the increase of value in price or rent. 

A Homestead Law with such a condition, insuring to the com- 
munity the reversion at cost price whenever the party to whom the 
homestead has been given ceases to occup}' it either in person or 
through his or her descendants, would have produced wonderful 
results; but. unfortunately, a law of this kind has never existed. 
The American abortion bearing the name of "Homestead" has been 
a most serviceable instrument of landlordism and capitalism. Only 
Germany in her new Chinese colony has shown a practical approach 
to something in the nature of a real Homestead Law. The State 
buys the land from the former occupiers at a certain price based 
on the land tax paid by them, or rather the land rent, as the soil 
of China nominally belongs to the Emperor. The land is then 
sold to the settlers at the market price resulting from supplv and 
demand. The right of pre-emption is reserved to the State, in case 
the buyers want to sell at any future time. H the government makes 
no use of this right, it"" demands a tax of 2 per cent, on the selling 
price and, furthermore, one-third of the imearned increment, of 
the profit made on the original price — of course, taking first account 
of the improvements made by the owner. This third has to be paid, 
anyhow, once within 25 years, whether the land changes hands or 
not. In addition to this, a yearly tax is demanded amounting to 
6 per cent, of the selling value of the land. This tax cuts ofT the 
S(m1 under the feet of land-hoarding speculators, who. besides the 
interest on their outlay, lose every year as much as 6 per cent, of 
the selling value of the land they leave unused; and, in the best of 
cases, they have to give up one-third of their final profits. It i^ 
under.stood that the 6 per cent, cannot be deducted from the profits 
from which the State gets her third. As the tax is one of the con- 
ditions of the purchase, all the advantages of a land-value tax arc 
reaped by the State without the stigma of confiscation. 

A valuable proof in the progress made in land reform occurs in 
Germany since the society now called the League of German Land 
Reformers v.as foun'ded. through mv instrumentality, in 1888. a time 
at which the mere idea of land nationalization was generallv rid- 
iculed in the Fatherland. Such proof is furnished by one part of 
the address with which the government's representative. Contre- 
Admiral Tirpitz. introduced the new law in the Reichstag. He 
put stress on the fact that the financial point of view had stood 
in the second line only in the motives which caused the govarnment 
to bring forth this law ; motives which any one would have looked 



LAND. 29 

for in the pages of "Progress and Poverty" rather than in the speech 
of a representative of Germany's emperor. Better than this, a 
representative of the Bund der Landwirthe, the league of the 
agrarians, Germany's big land owners, not only approved of the 
law, but would have liked to see the third of the State's share in 
the profits raised to one-half. The manner in which this pro- 
gressive law may affect the development of the German colony will 
be shown in time. 

However, the best system of securing enough land for the occu- 
pier and the rental income for the community is Common Land- 
ownership. 

Of all which has ever been written on this subject, nothing can 
approach the wonderful work of Henry George, the pioneer of the 
modern land reform movement. "Progress and Poverty" has 
opened a new world to untold thousands who had previously re- 
frained from social reform work, because socialism did not seem 
attainable or even desirable, and no other solutions were in sight. 
The mere looking out for such meant a dive into the dismal abyss 
which the science of economics presented to the ordinary mortal, 
until Henry George's poetic prose, his wonderful imagery, a limpid 
style such as had not been known since Macaulay fascinated his 
hosts of readers, rendered economic subjects more attractive than 
the ordinary novel. Here lies the imperishable merit of the book ; 
not in its scientific theories, v\^hich unfortunately contain many sad 
errors. 

The book is too well known to require any recapitulation. To 
those of my readers who have not read it, I merely offer the advice 
to study it. They may not agree with everything in it ; in fact, if 
thev have any notion of economic realities they will shake their 
heads over several strange theories, such as the relations George 
finds between wages and interest, his absolute negation of the wage- 
fund theorv through his ignorance of the currency problem, and his 
ideas as to the cause underlying commercial depressions. But they 
will acquire the absolute conviction that justice and expediency 
demand that the ownership of the soil must belong to the people as 
a whole, and that no thorough-going reform in the social domain is 
at all possible without the restoration of the land to the community. 
With unmitigated delight we follow the author's sledge-hammer 
strokes against the greatest crime man ever committed on this planet 
— the crime of selling and pawning God's own, this earth, the great 
h.eritage of humanity.- One after another of those sophistic defences 
' ith which the usurpers and their gang of venal or ignorant lackeys 
liave tried to prop up the foul wrong crumbles before those mighty 
.'trokes. Nothing will hold together. Not the right of discovery, 
or first occupation, claimed by the human mite left stranded for a 
\':\\- seconds by the ocean of time on some little nook of this globe 
\ !;ich, according to this mitish knowledge, was never before alighted 
I ^)()n by any fellow-mite of his, whereupon the little mite prefers 



JO THE ECONOMIC AND SOCIAL PROBLEM. 

a title to that nook for all times to come, including the right of use 
and abuse, of letting to fellow-mites against heavy tribute, or with- 
holding the use, though fellow-mites should die miserably in con- 
sequence. Not the right of conquest, based on superior power, driv- 
ing other mites from the locations previously occupied by them — 
a dangerous title anyway, for it legitimizes Democracy's claim to 
the right of expropriation without compensation, whenever it has 
the power to enforce the claim. Not the right of purchase from 
other mites, whose title, after we have proceeded backward through • 
the centuries, finally finds itself based upon some pretence of first 
occupation or conquest. Not any right whatever given by king or 
parliament : by His Majesty, the chief mite, or the mite-hive's 
representatives. Not even the assent of all the mite-hives which 
ever crawled over this little dustball of the universe during a few 
pulse-beats of eternity, on their journey from the unknown to the 
unknowable, even if this assent be engrossed ever so visibly on the 
hides of defunct sheep, goats, or asses. Can a thief give a .valid 
title to his booty? 

George shows that the right given by improvements can onl 
extend to the improvements, not to the land on which they ar ; 
made. What produces most of the land's value are not the im 
provements made by the landowner, but those made by other , 
outside of his land. If an untouched piece of original forest land 
existed near New York City it might be even more valuable than 
the improved farm land near it, through the value of the timber, 
but the main value of both improved and unimproved land would 
be created by the neighborhood of millions of men and women 
who need this land as a place of work and residence. What gives 
to land most of its value is not the labor of the owner, but that of 
all humanity since untold ages. 

A Stephenson broods over the problem of transportation by steam- 
driven wagons on iron-shod roads ; others invent new plows, sow- 
ing, and reaping, and threshing machinery — and land far off in 
Dacota's prairies, as worthless before as the water of the ocean, 
acquires an immense value. Not through the work of the cul- 
tivator, which covers it with the waving corn ; for he is getting his 
wages from the proceeds of this corn after the rent of the land has 
been paid. This rent is due, not to the corn which can be grown 
on the land, for that could have been done since immemorial times ; 
but to the railways and steamers which permit the sale of this corn in 
the London market, cheaper than the neighboring Essex farmer 
can supply it ; which puts the farmer into communication with the 
rest of the world, from whence all he needs is brought to his door 
at reasonable rates. It is further due to the inventors of that 
machinery which enables one man to do the work of a hundred. 

An inventor finds a system of freezing establishments and cool- 
storage ships, through which .Australian carcases of sheep and cattle 
fan be cut up by the Smithfield butcher and served to the Londoner 



LAND. 31 

as fresh as the meat of animals slaughtered yesterday — and millions 
of Australian acres double and treble their value in consequence. 
Talk of this value being due to the improvements of the landlords ! 
Why should they be entitled to land values produced by this and 
similar work done all over the world, including the work of the 
meanest hand in an English factory, which enables him to buy this 
Australian meat or this Dacota wheat, and thus pay some of the 
rent of the distant land ? Germany's warriors are victorious on the 
fields of Koniggratz and Sedan, and the farmer at the gates of 
Berlin sells his land for building purposes at a price exceeding its 
cost more than a hundredfold. Was it his merit? The State erects 
irrigation works on the Grand river of Colorado, and land — bought 
a few years before as a homestead, almost for nothing — soon sells 
for $600 an acre, because water becomes attainable at a moderate 
charge which changes the desert land into fertile soil, producing 
innumerable crops without manuring. Is it the merit of the chance 
land owner that the State or private parties carry out irrigation 
works ? Only the community can be the rightful heir of the fruits 
of this work of present and past generations, which made the world 
of to-day, can rightfully claim the additional value, the unearned 
increment, as it is called, thus created. Rather a misnomer, for, 
as Miss Helen Taylor said : "Those who earn it don't get it, and 
those w^ho get it don't earn it." 

With kindling eyes you read on and on, more and more eager to 
follow the great leader to the ramparts where the advocates of wrong 
vainly try to defend their parchipent fortresses. Alert you listen 
for that word of command by which the glorioiis captain will direct 
the attack. 

At last you come to the study of Chapter II, of Book VIII. 
Can you believe your eyes? Are you reading aright? Is it pos- 
sible that the very man who has just proved with a logic as trans- 
parent as crystal that private property in land is doomed and must 
be exterminated, if humanity is to live, that this very man now 
advises you to leave this property in the possession of its present 
owners, on the grounds of expediency, and to content yourself with 
taxing it ? Again and again you read the page ; but there it is, 
it cannot be wiped out. Was the great prophet after all only a 
poor, erring human being? 

It is almost unbelievable that a man like Henry George should 
have thus left the straight plain road he had opened, and should 
instead have chosen a crooked by-path, full of thorny weeds, and 
ending in a quagmire. For such a course he must have had most 
powerful motives, certainly worth examination. 

When, however, we investigate his reasons our astonishment in- 
creases, for all he has to say in explanation of such a sudden 
departure from the principle which the whole book has been ad- 
vocating, is contained in the following few lines : 

"To do that (confiscating all the land and letting it out to the 



2)2 THE ECONOMIC AM) SOCIAL i'l^ODLEM. 

highest bidders) would in\ol\c a neediest shock to present customs 
and habits of thou,q;ht — which is to be avoided. To do that would 
involve a needless extension of government machinery — which is to 
be avoided. It is an axiom of statesmanship, which the successful 
founders of tyranny have always understood and acted upon — that 
,s:reat changes can best be brought about under old forms. We, 
who would free men, should heed the same truth. It is the natural 
method. When Nature would make a higher type, she takes a 
lower one and develops it. This is also the law of social growth. 
Let us work by it. With the current, we may glide fast and far. 
Against it. it is hard pulling and slow progress." 

That is all. 

George, i?s we see, sets out from the axiom that land nationalizers 
want to confiscate the land, though most land nationalizers. like 
myself, will fail to remember ever having met one single partisan 
of our special method of land restoration who even dreamt of 
proposing such a measure. It is, however, quite consistent with 
George's convictions to leave out of consideration any other method 
of accomplishing land restoration. 

The idea of compensation is so absolutely antagonistic to his 
thoughts and principles that he cannot even conceive how those 
land nationalizers who propose compensation — and, as I have jusf 
said, they all do — can be honest. In his opinion, we do not really 
want to obtain the land for the people at all; we only want 'to 
draw a red herring across the track" of land restorers, as one of 
George's disciples once stigmatized my work for land nationalization 
in New Zealand. George's words are: "For to sav that men must 
be compensated if they are prevented from doing a thing, is to sav 
that they have a right to do that thing. And this those, who in- 
telligently advocate compensation, know. Their purpose in ndi'Ocat- 
ing compensation is to prevent abolition" ("A Perplexed Philos- 
opher," p. 276). Now, it is certainly not a feeling of unkindness 
towards co-workers on another plan which begot such thoughts, 
for he was the kindest of men and the most loyal of friends. No, 
it was his firm and unshakeable conviction of the absolute injustice 
of compensating anybody for ceasing to perpetrate a wrong Pri- 
vate land ownership, in his eyes, is a theft, and if anybody were 
to be compensated, let it be not the robbers, but their victims, the 
landless people whose heirloom has been taken away from them 
since times immemorial. Emerson gave expression to the same idea 
regarding compensation to slave-owners: "Pay ransom to the 
owner, and fill the cup to the brim. Who is the owner? The slave 
is the owner; pay him!" "Let bygones be bygones," T have heard 
George say repeatedly in public, "only don't sin any more!" . . . 
"Let the people forgive the past, the immense amounts wrested 
from them by the landlords, and only demand to be at last reinstated 
in their rights." 

According to him, it makes no difference how the land-owners 



LAND. 



23 



got into possession, whether they inherited, stole, or bought their 
land in good faith. The law demands restitution without com- 
pensation from anybody who bought stolen property; why should 
there be any difference whether the stolen object is a watch, or a 
piece of God's earth ? 

He usually compared private land ownership with slave property. 
Both confer the right of claiming the work of fellow-men without: 
any compensation. In fact, we might say that the slave-owiier 
gives some kind of compensation to the slave whose services he 
makes use of, for he feeds and clothes him, provides him with 
shelter, medical advice, and assistance; whereas the landlord de- 
mands his rent, little caring how the tenant makes a living. The 
tenant often has to work harder than a slave to pay his landlord, 
and has to "find" himself. 

"Compensation for the selling value of a slave, which disappears 
on the refusal of the community longer to force him to work for 
the master, means the giving to the master of what the power to 
take the property of the slave may be worth. What slave-owners 
lose is the power of taking the property of the slaves and their des- 
cendants ; and what they get is an agreement that the government 
will take for their benefit and turn over to them an equivalent part 
of the property of all. The robbery is continued under another 
form. What it loses in intension it gains in extension. If some 
before enslaved are partially freed, others before free are partiallv 
enslaved" ("A Perplexed Philosopher," p. 263). We shall see 
further on that this is an error ; that compensation can be given 
without the imposition of any new tax. 

Other aguments are given, and more might be added. 
■ A strong one has already been alluded to on a previous page. 
The original title — in Europe, anyhow — is based on conquest in the 
last resort, on the right of the strongest. Since the landless people 
now are stronger than the land-owners, the latter could have no 
valid objection to confiscation were the people sufficientlv united 
for land restoration to overcome bv force any possible resistance, 
for the new title would have the same foundation as the one it 
superseded. History has seen such cases. On that memorable 
night of August 4, 1789, of which Carlyle says: "Dignitaries, tem- 
poral and spiritual; Peers, Archbishops, Parliament-President, each 
outdoing the other in patriotic devotedness, come successively to 
throw their own untenable possessions on the altar of the Father- 
land. With louder and louder vivats — for indeed it is after dinner, 
too — they abolish Tithes, Seignoral dues, Gabelle. excessive Pre- 
servation of Game; nay, Privilege, Immunity, Feudalism root and 
branch." 

It was a voluntary surrender onlv in appearance; in reality, the 
old spent force which once had conquered the privileges yielded to 
the new force, which did not content itself with what was sur- 



34 THE ECONOMIC AND SOCIAL PHOBLLM. 

rendered, but conliscated a good part of the remaining niunopol} , 
the property of the land. 

\\ hen a people emerges fron; despotic government, and takes its 
de>tinies into its own hands, assuredly it may also overthrow the 
institutions of the old regime ; revolution has its own laws, those 
of the strong 

So has reaction, the revolution backward. The following passage 
taken from Macaulay's "History ol England.'" Chapter II. shows 
to members of the English Libertv and IVoperty Defence League — 
a league of drones formed for the defence of the libert\ of exact- 
ing tributes from the land-using workers, and of the property 
wrested from the people, the land — that their own part\ supplied 
a very valuable precedent how to treat vested rights, even where 
founded on cash payment. Their own actions in the past have 
deprived them of their strongest defence against plans of con- 
fiscation. 

Single-taxers (the infelicitous title assumed by those followers of 
Henry George in the United States and in England's colonies, who 
have adopted his land-restoration method) mav point out to the 
Liberty and Property Defence League of how little value their 
own party accounted the right based on honest purchase, how it 
was they who first in England made use of Henrv George's argu- 
ment in regard to land that the owner of stolen property has the 
right to take possession of it without any compensation, wherever 
he finds it, never mind what consideration has been given by the 
actual possessor. 

"Property all over the kingdom was again changing hands. The 
national sales ( under Cromwell ) not having been confirmed by Act 
of Parliament, were regarded by the tribunals as nullities. The 
bishops, the deans, the chapters, the Royalist nobility and gentry re- 
entered their confiscated estates, and ejected even purchasers who 
had given fair prices. ' 

It is hard to see. however, in what wav confiscation could be justi- 
fied on such grounds in the United States, where most of the land 
was parted with by the people's elected representatives, who acted 
in perfect agreement with their mandators Though Henrv George 
was not the first who wrote against the prevailing system of private 
landownership, yet before his great book appeared not one man 
in a thousand was conscious ( f tin fact that trade in land differed 
fundamentally from the trade in any other marketable object. 
Though the abuses due to the system were painfully felt, the system 
itself was attacked only by a few socialists whose opposition to 
private land ownership formed only a part of their antagonism to 
any kind of private property used for revenue purposes. The 
people, as a whole, were just as ardent defenders of the freehold 
as they were of other private property. Would it be just under 
such conditions to turn round on and punish with confiscation 
men who acted on views which we ourselves entertained but yester- 



LAND. 35 

(lay? We should act like that good Christian who wanted to justify 
his attack upon one of "the Lord's people" by accusing them of 
crucifying Christ. When his victim defended himself by stating 
the fact that the circumstance had taken place a couple of thousand 
years ago, he replied : "No matter, I had never heard of it until 
yesterday !" 

It is hardly fair to style landowners "robbers'' under such circum- 
stances, and certainly nobody has a right to mdulge in such asper- 
sions and to ask for confiscation, who himself held the ladder by 
which the burglars entered the house 

A state which proceeded on these lines would furnish a very bad 
precedent. To-day it confiscates the land which it sold for hard 
cash, because private landownership is robbery ; to-morrow it 
declares that the public debt has long since been more than repaid 
by the interest the creditors have received in the course of years, 
and interest is robbery. Consequently the debt is repudiated with- 
out any other compensation to bondholders than to call them rob- 
bers, never mind whether they are the origmal lenders, or those 
who bought their papers only yesterday, trusting m the State's good 
faith. The day after, socialists obtain the majority and declare 
every employer a robber; they confiscate the factories built by the 
workers, and, of course, as they make it out, belonging to them by 
right. 

We can leave the question aside whether the confiscation of the 
land is a crime or a justified action, for Talleyrand's famous word 
applies here: "C'est plus qu'un crime, c'est une faute." (It is more 
than a crime, it is a blunder.) Even the proverbial Yankee who 
sent his son into the world with the advice. "Make money, honestly 
if you can. but make money anyhow !" preferred the honest way, 
if it was as practicable. If I shall therefore succeed in proving that 
compensation is the practicable method and, further, that it is the 
cheapest, I should think that we may as well take that way which 
most people in our generation believe to be also the honest way, 
never mind what George and his disciples may think of it. 

It is not with books like "A Perplexed Philosopher" that such 
men as Herbert Spencer are gained over to our side. The great 
sociologist certainlv acted wrongly when he gave up the idea of 
land restoration because he could see no practical way of accom- 
plishing it without wronging the present owners. Such a with- 
drawal was not moral in a man who had recognized that "with this 
perplexity and our extrication from it. abstract morality has no con- 
cern. Men having got themselves into the dilemma by disobedience 
to the law, nmst get out of it as well as they can, and with as little 
injury to the landed class as they mav." 

Henry George would have been better entitled to cast stones at 
Herbert Spencer if "Progress and Poverty" had proposed a prac- 
tical reconcilement of the interests of the people with those of the 
landowners. 



36 THE ECONOMIC AND SOCIAL PROBLEM. 

On page 282 he reproaches Herbert Spencer for not even so 
much as alluding to his proposal of taking land values, not land . 
for ignoring it "because there is on that line no place lor proposing 
or even suggesting compensation. Compensation to the ultmiate 
payers of a tax is something unheard of and absurd-" 

Even here George is wrong, as I pointed out to him before he 
wrote this passage. When in 1865, in Prussia, the land tax was 
imposed on the properties of certain nobles, who, as former inde- 
pendent sovereigns, i. e., direct dependents of the German Empire, 
had been exempt from this tax, they were compensated to the full 
capitalized amount of the tax (at 4^ per cent, or 22 years pur- 
chase), because a tax on land confiscates a proportionate part of 
the land's value, which is nothing but the capitalized rent ; and any 
deduction from this rent correspondingly reduce^ value, or selling- 
price. Whether we take away a man's land, or the -ights which 
this land gives him. and which alone constitute its value, amounts 
to the same thing. If we give him no compensation, we are guilty 
of confiscation. 

I should have had a better right to accuse the illustrious Spencer 
that he maintained errors long after he had a chance of correcting 
them. After his letter in the Times (November. 1889), gi'^''"? 3^ 
his principal reason against carrying through land nationalization 
that the interest which would have to be paid to rai'^e the funds 
required to compensate landowners would exceed the rent obtained 
by the State. I showed him how, through the rise of rent on the one 
side and the falling of the interest-rate on the other, there would be 
a growing surplus sufficient to pay ofif the whole debt within a 
measurable time. Granting, as implied in the answer 1 received, 
that pressure of work and the state of his health prevented the 
philosopher from giving a complete reply, ^-till he cannot be excused 
for failing to investigate the facts placed before him If found 
true, as they were bound to be, they withdrew the foundation on 
which his opposition to land nationalization had been based, a reform 
without which — according to him — the law of equal freedom is in- 
fringed. 

As confiscation is not on our programme, let us see whether, as 
George savs. land nationalization ''w(nild involve a needless shock 
to present customs and habits of thought." 

Certainly not in England, wiKve by far the greatest part of the 
land does not belong to the people who use it, and is not used by 
those who own it; where it does not change to any great extent 
exi.sting habits and customs, whether the tenants, the land users 
who were the highest bidders, have to pay their rents to the agent 
of the Duke of Westminster. Buccleuch. etc.. or to the official of 
the government. Even in the United States almost 40 per cent, of 
the land is worked by tenants, and some of the rest is mortgaged 
so heavily that the nominal owner is practically the tenant of the 
mortgagee. Similar conditions exist pretty well in the whole of the 



LAND. 37 

civilized world. If we take all this into consideration, we come to 
the conclusion that, after all, the substitution of the State for the 
private landlord would not involve so very great a "shock to exist- 
ing customs and habits of thought." 

But to impose a tax that shall gradually grow until it swallows 
the whole rental value of the land, thus gradually to confiscate the 
basis of this property guaranteed by the State like any other prop- 
erty, to put on the shoulders of one class of citizens the whole of 
the State's charges, this, according to Henry George, could be done 
without any "needless shock to present customs and habits of 
thought." 

He goes on: "To do that (nationalize the land) would involve 
a needless extension of government tnachinery, which is to be 
avoided." 

When George wrote this he was almost totally unacquainted with 
the political condition of European countries ; he reasoned from the 
impressions received in his native country, the United States. Even 
thus he left out of consideration the working of cause and effect. 
Instead of arguing : The powerful monopolies which have arisen 
out of private landownership have corrupted our government 
machinery to such an extent that we cannot -possibly entrust it 
with the administration of the land of the nation ; he ought to have 
reasoned : The destruction of those influences which have made the 
government of the United States almost the most corrupt on earth, 
among which our system of landownership takes the first place, 
can alone restore purity of administration to such a degree that we 
may safely confide the land of the people to their government. If 
he had gone to Germany he would have found the Prussian State 
domains among the best administered farm land in the country. 
The States' forests are models of a perfect management. The 
national mines and railroads are well managed. The effects of 
land nationalisation on employment would render government em- 
ployees more independent and less liable to obey unjust dictates 
from above, so that even the political dangers which might be feared 
from a further extension of government influence would be less 
than under our type of administration. A landowning democracy 
where every citizen has a stake in the country is certainly less cor- 
ruptible than a landless rabble. 

And, must we ask, has corruption no influence on tax collection? 
When we behold American officials, charged with the assessment 
of personal property, so blind that they cannot see the contents of 
large palaces full of the most valuable furniture and objects of art, 
but consider them as not in existence, and as if the millionaire who 
exhibits them daily to his guests possessed bare walls and the 
simplest pine furniture ; when we see the Mayor of Cleveland, Tom 
L. Johnson, prove to the railway pass-owning tax assessors that 
their assessments of railway property are made at only one-tenth 
of the actual value, can we expect such officials to obtain much 



38 THK ECONOMIC .\N1> SOCIAL PROBLEM. 

better eyesight under the single-tax? It is true, land values are 
more visible than the contents of a palace, though not more visible 
than the real estate of a railroad, but a much thicker gold varnish 
is at hand to render opaque the assessing official's spectacles. It 
is already thick enough in the case of our present land assessors. 

"It is an axiom of statesmanship, which the successful founders 
of dynasties have understood and acted upon — that great changes 
can best be brought about under old forms. We, who would free 
men, should heed the same truth." 

Perhaps ; but not when some day the old form threatens to bring 
back the old contents. Who guarantees us against a repetition of 
historical facts, such as those connected with the Engli.sh land tax? 
Every land reformer is familiar with the manner in which Eng- 
land's landlords used their legislative power to reduce this tax, a 
remnant of their military dues in times of feudalism, to about one 
twenty-fifth of its original signification, by leaving the valuation on 
which it was imposed unchanged since the time of William III., 
whereas the value of the land increased twenty-five-fold since. If 
this tax had been collected from the actual value of the land, as it 
ought to have been, its proceeds would have redeemed England's 
public debt. 

Or take German experience, showing how even those nobles who 
were compensated for subjecting themselves to the land tax helped 
in the agitation, anyhow passively, to have this tax practically re- 
pealed by demanding that its proceeds should be used to relieve 
the rates, which were mostly on the shoulders of the landowners. 
The German "Lex Huene" and the so-called "Landlord relief bill" 
of the recent English Tory government are twins, but the German 
case is even more iniquitous. Only a generation had passed since the 
equivalent of the tax had been handed over to these noble landlords 
in interest-paying State bonds ; yet who could have anticipated that 
so soon a time would arrive when these very men, while complacently 
continuing to cash the interest coupons of these bonds, would try 
to get rid of the tax they had undertaken to pay with the proceeds 
of these same coupons? 

And a time would come also when a new Pharaoh knows not 
Joseph, when Henry George's arguments would be forgotten, and 
when the landholders would unite in a fight against his victorious 
single-tax, with the success which united and strong minorities often 
gain against divided and indifferent majorities. Shall we. with 
open eyes, expose our children to this danger ? No ; the hydra, 
L.and Monopoly, can never be efifectually destroyed until wc cut off 
and burn out all its heads, the land titles as well as the rental income. 
Otherwise we shall see the experience of old Hercules repeated : 
while one head is cut off, an other is rapidly regrowing. 

Though the danger is not so great as under Single-taxism, it is 
not totally absent even under land nationalization. 

This is proved by such an outrage as the "Rebate of Rent Bill," 



LAND. 



39 



brought in at the end of the 1900 session of the New Siealand legis- 
lature. Here we had a government deliberately attempting to make 
a present to State tenants of 10 per cent, of their rents, which means 
courting the favor of these tenants by offering them the nation's 
property. Where the whole of the land belongs to the nation, there 
will be naturally more State tenants than at present, and con- 
sequently the number of electors influenced by such gifts must be 
proportionally much greater. Who guarantees us that the Seddon 
of another generation might not ofifer to relieve the tenants of half 
the rent they agreed to pay, or even the whole ? 

The case proves the old truism that economic and political reform 
must go together. The most advanced political freedom has no 
guarantee of permanence where the economic and social position of 
the people is on a low level, of which Rome's history supphes the 
best illustration. On the other side, it is equally true that not only 
are political arms required to fight the battle of economic reform, 
but that political reform affords the sole means of preserving the 
results of victory. The land and its fruits can only be secured to 
the nation by preventing the servants of the nation from becoming 
its masters, by giving the citizen the power of effectually carrying 
out his will through the referendum. Where the constitution can- 
not be changed without a vote of the majority of all who are entitled 
to vote, and where the new laws are made part of the constitution, 
attempts of the nature just described are effectually barred. 

If Henry George wanted to conserve old forms he ought just to 
have fought the freehold, which is a new form and a mere transitory 
stage between two kinds of tenancy, the ruling system the world 
over, though the forms of the tenancy contract gradually changed. 
If we look at the mortgage as a kind of tenancy contract, and if 
we exclude those remaining freeholds which are worked by paid 
laborers, a very insignificant fraction remains where the freehold is 
worked by the owners. We have found that this holds good even 
in France, the reputed home of the peasant proprietor, and in 
new countries, like this and Australasia. 

But even supposing the freehold to be the old form, would it be 
real statesmanship to bring about the great change by the method 
which George proposes? The very reverse is true; in fact, his 
system is the only one which has absolutely not the least chance of 
being carried through. If confiscation should ever solve the land 
problem, if the people should ever reach the state of mind without 
which such a measure cannot possibly be carried — looking at might 
as right — they would not stop at mere taxation ; they would take 
the land and all there is on it. Not Single-taxism but Communism 
would be the result of such a mental state, and a much more logical 
result, too. 

If George wanted to follow "the law of social growth," "the 
natural method," which to "make a higher type takes a lower and 
develops it," he had no other way but to develop the prevailing 



4P THE KC().\(tMir ANT) SOCIAf, PRdlU.I'.M. 

lower type — private tenancy — and to develop it into the higher type 
of public tenancv ; and this means land nationalization, not Single- 
taxism. 

"With the current we may glide fast and far ; against it, it is hard 
pulling and slow progress." 

Of all the vain delusions under which Single-taxers sufifer, the 
worst is the professed belief that most landowners will voluntarily 
consent to the imposition of the Single-tax. The landowners would 
not dream of such a thing, even if it could be proved to them that 
they would gain more through the relief from all other taxes than 
they would have to pay. if taxed as high as loo cents in the dollar 
on unimproved rental values. One of my best friends in New Zea- 
land, a farmer owning about 500 acres, which is by no means a 
large farm in that country, a convinced socialist, would not listen 
to Single-taxism. because he could not see why landowners alone 
should have to bear all taxes, while the majority of the people were 
relieved altogether. That is human nature, and we have to reckon 
with it. Besides, no juggling with figures could make him see how 
this relief from taxation of all non-landowners would not increase 
his own charges. Leaving out of consideration the fact that all 
small landholders in town and country entertain the hope of some 
day extending their holdings, and thus entering that class which, 
according to the Single-taxers, will have to bear the brunt of the 
battle, it is rather disgusting thus to play the "beggar your neigh- 
bour" game. 

"\'ote for this law ! It will not hurt you ; it will only weigh upon 
the richer men!" is certainly not a battle-cry apt to inspire a nation. 
This appeal to the lower instincts invariably and justly proves to 
be a bad policy. If, in this instance, it were effective, the Single- 
tax would ^(ive no final satisfaction ; far beyond the intention of its 
apostles, the ultimate goal would be sought. 

Another serious objection to the Single-tax campaign is that, by 
substituting a tax and practically a tarifif problem for the great 
land reform, it shifts the entire battle-ground, to the great dis- 
advantage of the reform. IVlany people who are enthusiastic for 
land restoration do not believe in free trade : the inevitable out- 
come of Single-taxism, which preaches the substitution of the land 
tax for all other taxes and duties. It has been the cause of creating 
antagonism to land law reform (or land reform,, the usual name) 
from motives absolutely strange to the same. A man may honestly 
believe that protective duties benefit his country, and still he may 
be an ardent land reformer. The intermixture of tariff legislation 
and land reform has thus done a great deal of harm, especially in 
the United States and the British Empire. In these countries many 
enlightened men are thorough protectionists, who, in that respect, 
have to stand up against jncn with whom they are united in the fight 
for a much more important issue. 

But all this is nothing compared with the most serious obstacle . 



LAND. 41 

in the path of the Single-taxer: the mortgage. To tax away the 
rental value of the land destroys the best part of the mortgagee's 
security, and mortgagees are shrewd enough to be perfectly con- 
scious of this fact. They would be absolutely unmindful of their 
interests if they did not carefully watch the chances of success which 
Single-taxism might have. Long before its principles could ever 
be embodied in a law, mortgages would be called m all over the 
country.* It can easily be imagmed that in these circumstances 
new mortgages^ could not be contracted, and nothing would remam 
to the unfortunate landowners but to submit to a public sale. The 
prices which the land would fetch in such a market would not pay 
off the mortgage, and the mortgagee would not only enter into 
possession of the land with all its improvements, but probably also 
of his debtor's other propertv as well, while the poor mortgageor 
would be completely ruined. Do Single-taxers really believe that 
our farmers will join their ranks, with such prospects before them, 
no matter what the future effect of the measure may be? I, for 
my part, have never yet met with such self-sacrificing farmers, and 
I have known a good manv. Individualists, as they mostly are, you 
could much sooner obtain their adhesion to communism pure and 
simple, which, at least, would give them an equal share in the total 
wealth. 

Difficulties like these were too glaring to quite escape the notice 
of George's followers. As is usually the case, where the straight 
path has been forsaken, concession has had to follow concession, 
each step taking them farther away from the original goal : Land 
restoration. They came to the conclusion that it would not do to 
cut the dog's tail all at once, but that a gradual increase of the tax 
until the hundred cents m the rental dollar or five cents of the 
capital value dollar have been reached, would be the only method 
likelv to be carried. They— the radical anti-compensationists — do 
not see that this system would leave much more of the unearned 
increment in the hands of the present landowners than a rational 
system of land nationalization It is easy to prove this. 

More than a quarter of a century has passed since "Progress and 
Poverty" was first published in this country, a quarter of a century 
which has seen a very lively agitation for the Single-tax. Yet there 
are few States in the Union where we have progressed so far that, 
the land is assessed and taxed independently of improvements, the 
first step towards the Single-tax, Practically not even this slight 
advance in the direction of the Single-tax, after which the tail- 
cutting business, the real campaign, is to begin, has been reached 
so far. Now let us suppose that the next* ten years may witness 
the first instalment of a tax on land values, independent of improve-. 

* Taxing also the mortgages would only precipitate the process of hav- 
ing the mortgagees look out for other investments, or of raising the in- 
terest rate paid by the rnortgagor^ high enough to compensate the mortgagee: 
for the tax, as is now done wherever this most foolish of all taxes exists. 



42 Tiir: iccoNo.xric' an'd social crorlrm. 

mcnts, beyond present taxes, to the amount of as much as one- 
tenth of the rental income, and that we shall find such self-sacrific- 
ing land owners or such a radical landless majority that the tax is 
raised every ten years one-tenth more ; a supposition so absolutely 
optimistic that no sane statesman would build upon it. In this 
highly improbable case it would take a centur\ '■'- before the com- 
munity could enter into the enjoyment of the full rental. This 
practically unattainable result would be equivalent, to the enjoy- 
ment of the full rental by the present land owners for another 50 
years. Now, if we are able to show that under a system of full 
compensation the land could be fully paid for without imposing 
any new tax, within not more than 25 years, can we not claim that 
the arch-enemies of compensation give practically a much higher 
compensation than those who advocate honest purchase of the land? 
This proves what Mr. Joseph Hyder, the able general secretary of 
the English Land Nationalization Society, said in "Land and Labor" 
of February 8. 1899; "The real controversy is not between com- 
promise and no compromise, but between two or more different 
compromises ; not between compensation and no compensation, but 
between two or more dififerent methods of compensation. For to 
say that landlords shall keep all the rent, less whatever tax can be 
levied upon it, is in reality to offer compensation in the hope that it 
may afterwards be cut down bv taxation " 

We should be much farther advanced if it were not for the stub- 
born extremism of Single-taxers, who insist on their special "ism," 
oppose all other methods proposed, and thus prove themselves the 
worst enemies of land restoration The final answer I usually get 
from their leaders, when I have driven them into a corner, where 
they can no more gainsay my arguments, is: "Let this proposal (of 
compensation) come from the landowners, not from us!" As if 
landowners all over the world were not perfectly satisfied with 
their monopoly ! As if they could be expected to initiate land 
reform of any kind ! Many of them will oppose both land na- 
tionalization and the Single-tax ; but whereas we perhaps can get 
them to meet us halfway on a plan of compensation, they would 
fight tooth and nail any attempt at confiscation. America had a 
civil war of four years' duration on less incitement. The proverb 
says: "Build a golden bridge for your enemy," and it is for us to 
propose fair means and ways to attain our end ; we must not wait 
for the other side to take the initiative. If they do take it. it will 
be on the lines of British landlords when they passed the Ashbourne 
and other recent Irish land acts, which strengthened landlordism by 
widening its base, just as the New Zealand "Land for Settlement 
Acts" have done in the past. 

However, even the Ashbourne Acts — although they merely created 

*The existing land taxes left out of consideration in this calculation are 
amply balanced by that part of the tax which is shifted; of which more, 
later on 



LA^fD. 43 

new landowners — have rendered our cause a great service by show- 
ing how easily compensation can be carried through without cost- 
ing the people a single penny. The land was paid for by means 
of the difference between the cheaper mterest rate at which the 
State could obtain the purchase money, and the higher rate at 
which the rent was capitalized m the land price. In this way, though 
a reduction of rents to the amount of 25% was allowed, the land is 
paid for within 46 years. But instead of belonging to the State at 
that period, through whose good credit the operation had become 
possible, it was made in favor of certain privileged individuals, be- 
sides the former landlords. The tenants, who accidentally were in 
possession at the time of the law, became landlords without paying 
a single penny, by simply continuing to pay their old rent, reduced 
by one-quarter for the next 46 years, unless they preferred to pur- 
chase right out at the official valuation. The Times of January 28, 
1890, gives the inevitable results. One tenant bought the farm he 
cultivated at ^550, and soon sold it, subject to the repayment of this 
sum, for £970. Another farm bought for £538 was sold, subject to 
the purchase money, for £1,280. One which had fetched £755 was 
sold by the fortunate tenant who obtained possession of it through 
the new law, subject to the purchase money, for £1,725. £3,975 profit 
were made in these three cases; more than three-fold the purchase 
money was obtained. Those who bought on such onerous terms pay, 
in the shape of interest, a more burdensome rent than their fore- 
runners, when their state of distress resulted in the legislation which, 
from the oppressed, made them the oppressors. It matters little 
whether the title under which the power of oppression is exercised 
is that of the landlord or that of the mortgagee, whether the tribute 
is called rent or interest, whether the oppressor is the nobleman, 
whose ancestors had conquered the land, or the former tenant, who 
has been fortunate enough to enter into possession when the new 
law passed, and who retires from active work supported in a town 
by the new tenant's or mortgaged owner's labor. 

The difference between the rate of interest at which the price 
which is to be paid for the land is capitalized from the rent, and the 
rate which the State would have to pay for the purchase money, 
would be at least as great in this country as in Ireland. The one rate 
will not be less than 5%, the other not over 3%, and instead of a 
reduction of 25% on present rates, a progressive country like this, 
with a rapidly growing population, could count on a rapid rise.* 

* This has been contested. It has been said that under free conditions 
rent will fall, because speculative withholding and rackrent are absent; 
wages of labor thus obtaining the increment caused by progress. I think 
this leaves out of sight the fact that nature produces wealth without human 
labor, though certain theorists deny it. saying that without the presence of 
man there is no market, and consequently no wealth in the economic seitse. 
Neither should we have professors of political economy without the exist- 
ence of man, a redeeming feature of the calamity. 

On the Mataponi river in Virginia, where seagoing ships , can load 
timber by merely throwing a plank to the shore from the ship, I have seen 



44 THK ECONOMIC AND SOCIAL PROBLEM. 

While the rental income of the State would thus increase from 
year to year, the interest rate, paid for the bonds issued for the 
purchase of the land, would decrease through the laws of supply 
and demand.* The demand for safe investments is growing 

land, in the sixties, where they counted that from one-half to one cord of 
wood grows yearly on each acre without any labor, and a cord brought $2 
in the standing tree. Of course this wealth production by nature would not 
have existed without the presence of people who wanted wood and of 
others ready to cut and ship it; but this does not in the least alter the fact 
thai nature produced wood on this land worth a certain price before any 
worker touched it; that nature added something to the productivity of labor 
which this labor could not produce to earn anywhere else. 

Is the value of the herd of cattle, living and procreating on the open 
prairie, entirely created by the labor of the cowbciy who branded then:: 

I pick out these special cases as examples, because here the part done 
by nature, without the assistance of labor, is so clear and unmistakable that 
no amount of sophistry can eliminate it; but the same fact exists more or 
less wherever labor uses land inside of the marpjin of cultivation ; i. e., in- 
side the line beyond which more land is found free than there are workers 
ready to use it. Such a margin exists in few civilized countries. Even in 
the wilds of the Scotch Highlands not a foot of land can be had free; nor 
could it be had free even under land nationalization; for rich men would 
always be ready to pay a certain rent for such land for its use as a deer 
park 

These deer parks indicate another land use forgotten by our theorizers — 
the use for health, comfort and pleasure, the value of which grows with the 
wealth of the people. The inhabitant of our slums, where a thousand and ' 
more people are crowded on a single acre, is just as fond of a cottage sur- 
rounded by a garden as his betters. Where now a thousand people live on 
'one acre, these will, in better times, want a hundred acres and more — though 
the single acre may fall in price, the total of the city's surface will yield 
a much higher rent, because large areas of agricultural land will be covered 
with houses and gardens. And where further out the rent now only cor- 
responds to the yield of wheat or corn, it then conforms to the higher in- 
come of the market gardener, whose produce is eagerly bought by a teeming 
wealthy population, and to the craving for their own pleasure-parks by the 
well-to-do, far more numerous than in our times of artificially restrained 
productive power. 

Thus it can safely be asserted that with the increase* of population and 
productive power the value of land and consequently of rent will increase 
all around, with which position Henry George is in full agreement. 

* The bonds could either be given in payment to the landowners, or they 
could be sold in the market, in which most of the former landowners to 
whom the money is paid would be looking out for these new solid invest- 
ments and thus return the money to the State. Under our wonderful system, 
which permits bankers to buy interest-bearing United States government 
bonds with money obtained almost free of interest on the deposit of these 
bonds, the nationalization of our land, our railroads, telegraph, etc., on this 
plan, instead of creating a money stringency, would cause the bond sales 
to make money more abundant. 



LAND. 



45 



all the time through the savings of untold thousands of persons who, 
taught by experience, shun investments in business and prefer land 
values and government bonds. The supply of the latter does not 
grow fast enough to keep pace with the unconsumed portion of the 
incomes that look for new investments, a portion rapidly growing, 
through the effects of compound interest. However, on the other 
hand, land values now offer an elastic field for investment, ever 
widening with the demand — not through any extension of the never- 
widening area, but through an increase of price in consequence of 
demand. As rent cannot increase equally fast, being limited by the 
paying capacity of the tenants and the yield of the land, such values 
cannot rise proportionately to the demand unless the rate of in- 
terest at which rent is capitalized is forced down. 

A few figures will illustrate this. Suppose that the demand for 
L (land) and P (the price paid for it) has quadrupled, while R (rent) 
has only doubled, I (interest rate) would be reduced to one-half; for 
P is the product of R multiplied by lOO divided by I. Therefore, 
whenever P rises to 4P, while R rises only to 2R, I must fall tO' one- 
half, or the total of 4P could not have been reached. If P rises from 
$100 to $400, though R only increased from $5 to $10, this implies 
a fall of I from 5% to 2^/^%, for at 5% an R of $10 corresponds only 
to a P of $200, while at 2^% an R of $10 capitalizes to a P of $400. 
Or, as it is often expressed in England, the price of the land has in- 
creased to 40 years' purchase from 20.* 

Just as slave values disappeared on the day of Lincoln's proc- 
lamation, so land values cease to exist when land nationalization is 
accomplished. It must not be forgotten that I use the word value 
only in its economic sense of market price. The real value of the 
negro,, as well as of the land, their use-value, not only remains after 
their liberation from private ownership, but rises; for free men are 
finally worth more tO' the com.munity than slaves, and free land will 
be made to produce more wealth than that which is monopolized by 
individuals. 

For the former land values, which — in the capital market — 
elastically extend with the demand for them, government bonds are 
now substituted, deprived even of the limited power of price exten- 
sion they now possess in consequence of their temporarily excluded 

* Of course this is only a rough outline, not quite corresponding to the 
actual facts, which are influenced by various data. For instance, we may 
find a local rise in the price of land based on the expectation of a future 
rent increase reducing the rate of interest, on which the capitalization is 
based, below the regular rate. The demand of land-hungry peasant pro- 
prietors, or neighboring owners of large properties, desirous of enlarging 
their possessions, may work in the same direction. The difficulty of selling 
land or of collecting rents rapidly may, on the other hand, raise the rate of 
interest at which the rent is capitalized above the interest rate of bonds, 
which will take place the more certainly the more the rate of the latter 
falls below a certain limit. For instance, it is not likely that at a bond interest 
rate of ^2% rent will multiply with 200 (200 years' purchase) to obtain the 
land price. Perhaps only a hundred years' purchase would be obtainable. 



40 THE ECONOMIC AND SOCIAL PROBLEM. 

convertibility, which makes the tall of the general interest rate rai • 
correspondingly the bonds' price, their exchange rate. A fall oi 
interest from 5% to 2y2% would result in a rise of 5% bonds, in- 
convertible for a long period, from 100. the supposed price of issue. 
to 200, or. to be exact, to some price between 100 and 200, according 
to the date at which the bonds can be reimbursed at par. The loss 
of capital must be just made up by the gam in interest. This is the 
reason why certain bonds are quoted at a premium on the stock 
exchange.* As a matter of course, in our case, the State would not 
forego the right of reimbursement or conversion for a period, as it 
did in the case of certain bonds in the interest of financiers under 
Cleveland. It would reserve the right to convert the bonds to a 
lower interest rate or to pay back their amount at any moment. 
This right of conversion or reimbursement at any time would keep 
the price of the bonds at or below the par level; consequently the 
interest rate, which the State would have to pay for her bonds, would 
permanently fall.f 

Each reduction of the interest rate and consequently of the 
interest dues on the bonds, besides the interest saved on the reim- 
bursed bonds — compound interest, for once, working on the side of 
the people — would increase the profit margin made l)y the State be- 
tween the rising rental income and the decreasing interest disburse- 
ments. The amortization of the public debt would thus proceed by 
leaps and bounds, and this would further restrict the field of interest- 
bearing safest investments for private capital. The efifect would be 
the increase of the demand for the said investments and of the pres- 
sure on the interest rate. How beneficially this would affect produc- 
tion and trade is left for discussion in the chapter on Interest; here 
we refer to it only because of its rent raising consequences to add 

*4% U. S, bonds 130 in May. 1906. 

t The falling of the interest rate which 1 expect from land nationaliza- 
tion independent of currency reform, is not without historic precedents of 
similar conditions. I quote from .Adam Smith's "Wealth of Nations." Book 
I, Chapter IX: "The province of Holland, on the other hand, in proportion 
to the extent of its territory and the number of its people, is a richer coun- 
try than England. The Government there borrow at 2%, and private people 
of good credit at 3. The wages of labor are said to be higher in Holland 
than in England, and the Dutch, it is well known, trade on lower profits 
than any people in Europe." 

See also in Kahn's "Geschichte des Zinsfusses in Deutschland," where 
we learn that the interest rate of mortgages in Hamburg was 2%% previous 
to 1842. 

At the time of which Smith speaks comparatively few bonds of any 
government existed — only 2500 million dollars, according to Fenn — and land 
was mostly tied up, so that little opportunity of this sort was open for the 
investment market. In Hamburg, at the period mentioned, the savings of 
its rich citizens seeking good investments near home, were very large, while 
the demand for money on mortgage was comparatively small. 

Incidentally we might note that the low interest at which money could 
be obtained by business men in Holland had an efifect on wages not at all 
in accordance with Henry George's strange theory that interest and wages 
rise and fall together. 



LAND. 47 

another element to strengthen my assumption that the period re- 
quired for the amortization of the debt, incurred through the pur- 
chase of the national land, would not exceed 25 years, and that not 
a single tax would have tO' be imposed for the purpose. The income 
made out of the margin between the rent paid by the land users and 
the interest of the bond issued for the purchase of the land from its 
present owners, would suffice for the purpose. If such a plan had 
been carried out when "Progress and Poverty" first appeared, all the 
land could belong to the people by this time, free of debt, though full 
compensation was given. I need not say that the rent paid by the 
land users to the State is not a tax, but merely the equivalent for the 
special benefit obtained through the use of land. 

Of course, the term of the debt's final amortization might be ex- 
tended indefinitely, if found convenient. The probability is that it 
would be extended, because the State might have good use for part 
of the rental income for the benefit of the new landlords, the citizens, 
of which I shall have something to say further on. There need not 
be any hurry, for the interest rate would fall through the mere ex- 
cesss of the savers' demand over the supply of safest investments, 
an excess caused by the substitution of the unelastic, or eventually 
narrowing field of investment in government bonds to the elastically 
widening l^nd value field. The rate thus would fall, even if not a 
single bond were reimbursed. 

This part of my work is necessarily limited to a demonstration of 
the practicability of land purchase by the State without imposing any 
new taxes upon the people. No need to treat questions of detail, such 
as the expediency of purchase and administration by the States, the 
counties, or the municipahties of the individual States of the Union ; 
or of purchasing gradually; or at once. Many who' would have been 
afraid ofafinancial operation on such an immense scale tenyears ago, 
have of late become so habituated to business running into the bil- 
lions, that a few zeros more or less have lost much of their former 
bogey power. However, there are methods of a gradual nationaliza- 
tion which may prove less objectionable to many. For instance, the 
right of preemption given to the State at present values, for all times, 
whenever a sale takes place, would cut off the future unearned in- 
crement from investors by enabling the community to purchase 
whenever there is a profit in the operation. A number of Prussia's 
cities begin already to go part of this way in taxing away a portion 
of the profits made on land sales. It is an idea proposed as far back 
as 1870 by Professor Adolf Wagner, and since then taken up bv the 
league of German land reformers. Anyhow, whatever method may 
he found preferable, let us aim at full public ownership bv all means! 
Let us never be satisfied with a tax. no matter how high, even if it 
wc re only that a tax keeps up private ownership and does not touch 
the right of the landowner to use and abuse his power as he sees fit. 

Provided he pays his tax, nobody would under the Single-tax 
prevent another Duke of Sutherland from clearing thousands of 



48 THE ECONOMIC AND SOCIAL PROBLEM. 

hard-vvorking people from his land, from their fatherland, from mail- 
ing another of those bloody entries in Clio's book by which his 
family scutcheon has forever been tarnished. All that would be 
asked of him is to pay a tax equivalent to the highest rent which the 
poor, despairing crofters — driven unmercifully from the homes and 
the soil which they and their forefathers had tilled in the sweat of 
their brows — might have been willing to pay. What of that? His 
income from other sources, from bonds and stocks of all kinds, from 
houses and factories, allow him this sport. He wants a deer-park, 
and he can afTord to pay for it as well as the American Winans who 
bought Scotch land from sea to sea for this purpose. 

Nor could the Single tax have prevented facts like those re- 
ported in the following newspaper extracts: 

A Millionaire s Freak. — Mull, an island on the coast of Scot- 
land, is the property of Earl Beauchamp. It has an area of 237,000 
acres, and a population of 4,691 living in 1,030 houses. Among its 
products are oats, barley, i^our and potatoes, and the inhabitants 
have also had a fair export trade in sheep and cattle. A millionaire 
has recently secured the sole ownership of the island, and wishes to 
turn it into a deer-park for the amusement of himself and friends. 
He has, therefore, given the whole population notice to quit, and has 
decreed the pulling down of all the houses. — Barrier Truth. 

Dccr-Forests in the Highlands. — The acreage of deer-forests in 
Scotland is increasing. Fifteen years ago they ' extended in the 
Highland counties to 1,711,892 acres; last year (1898) they were 
2.287.297 acres. These figures are exclusive of certain forests., such 
as Glencannich and North AfYaric, with regard to which no return 
has been obtained. I observe, says a London correspondent, from 
the Parliamentary Report, that in several cases the sheep-farms of 
1883 have become the deer-forests of 1898. — The Highlander. 

Suppose that under the Single Tax the Rothschilds and a few 
hundred other millionaires in England and America should share 
this whim of turning Great Britain into a deer-park, and British land- 
lords should sell at reasonable figures because of the new tax. which 
destrovs the selling value of their land. Under existing laws, what 
could prevent these men from having their will? Certainly not the 
land-value tax, even if it were as high as it would be were the present 
values taken as a basis of calculation, i.e.. 200 million pounds a year. 
The income of Rockefeller and Carnegie alone is at present valued 
at 12 to 15 million pounds each; that of the Rothschild families is 
higher, and without going any farther, we have already obtained 
one-quarter of the yearly tax required. But how long would it be re- 
cjuired? How long would there be a rental value of 200 million 
pounds in a depopulated England, in that magnificent new deer- 
park? That value would follow British enterprise wherever the 
evicted people went. The Ignited States. Australia. New Zealand. 
Canada. South Africa, would see their land values rise as the British 
lard values fell; and finally, the 200 million might be reduced to 



LAND. 



49 



something like 5 shillings an acre, to 20 million pounds, or less even, 
a mere trifle for such magnates.* That such an event is practically 
impossible is begging the question, because it is only saying in other 
words that the Single-tax is impossible. 

In fact, I can see no reason why this system should at all do 
away with some of the worst abuses of landlordism, abuses of daily 
occurrence. Even in Germany, where property is much more equally 
divided than in England, there are instances of large landowners 
who buy up all the surrounding land until whole villages disappear, 
sometimes to let the land become overgrown with forest. The same 
takes place in Austria. Henry George's plan would not in the least 
increase the financial sacrifice of such purchasers. They would have 
to buy and sacrifice only the improvements, as they do anyhow; the 
unimproved value of the land would disappear in consequence of the 
tax, and this tax would not be higher than the present interest on 
their purchase money. 

Nor could a mere land-value tax do away with cases like the 
following, which are quite of common occurrence in England and 
Scotland. Here are a thousand acres, used as grazing land for sheep, 
and yielding the landlord a net rental of ii,ooo in sheep and wool, 
after labor to the amount of, say, as much as £200 has been paid. 
If the land were let out in allotments, it would yield a rental of £2 an 
acre; and it would keep at least 100 families against 2 in the other 
case. The gross product would be at least four times, the net income 
of the landlord twice as large; but the landlord prefers the lesser in- 
come, because the division into small holdings would interfere with 
his sport. In the Paris Congress of land-reformers, my departed 
friend. William Saunders, in narrating his Wiltshire experiences, 
told of a landlord who preferred to accept 15 shillings an acre from 
a farmer rather than £3 paid for allotments — a rent at which the 
laborers, his tenants, yet made a living, while the farmer, who paid 
only a fourth, failed. 

Sport may not have been the only cause for this anomaly. The 
landlord was perhaps afraid that allotments would render the labor- 
ers too independent, so that neighboring farmers would have to pay 
higher wages, and thus be unable to afford as much rent. 

What difference would a tax make in such cases? The landlord 
would simply pay the tax, even though it should reach the height 
of the rent offered by the crofters, and would still retain the farmer 
(and his sheep) who takes part in the hunt, instead of interfering. 
The State could not prevent this comparatively unproductive use of 
the land — unproductive in a double sense: in wealth and in men. 
Under the Single-tax all it has a right to claim is its tax. 

* Since I wrote this, I have learned that Dr. William Clarke published 
an article in the Contemporary Review of December, igoo, in which he pre- 
dicts that England will gradually be turned mto the pleasure domain of 
the world's aristocracy and plutocracy. The population which did not 
emigrate would serve as their flunkeys and shopkeepers. 



5© TJJli i:C(>N().MlC AND SOCIAL PKOBLKM. 

Nor would a mere land lax prevent those abuses of the land- 
lord's power so often experienced in England, attacks on the liberty 
of conscience, the prohibition of building dissenters' places of wor- 
ship, or attempts against the tenants' political independence, co- 
ercion of voters through the Damocles sword of notice to quit always 
gleaming over their heads. 

Nor would it render possible the construction or reconstruction 
of tow'Ds on improved plans which might be adopted by a land- 
owning community, for under the Single-tax the community's 
power does not exceed its taxing privilege. Once the tax is paid it 
has nothing farther to say beyond the issue of comparatively trivial 
building regulations. 

Henry George was principally misled in his assumption that the 
self-interest of the individual must bring about the best use of the 
land. The tax would, according to him, be at a level with the high- 
est rent which the average land user would be ready to bid for the 
land, and no man could pay this rent without putting the land to 
the best use. The question still remains whether what may appear 
the best use to the owner or his tenant is always the best use m the 
interest of the community. 

We have already seen that the interest of the community is 
very often opposed to that of the individual, real or supposed. The 
individual has the passion of hunting and shooting, and his interest, 
as he understands it, drives him to deplete a large area of land of 
its inhabitants so that his game may not be disturbed. Or he may 
destroy thousands of homes because sheep-runs are more productive 
— not of human happiness — but of rent. On the other side, the com- 
munity prefer sheep to deer, and citizens to sheep. The State, if it 
realizes its own welfare, cannot allow a condition wherein — as was 
said in England centuries ago — sheep will swallow men. and it cer- 
tainly cannot allow deer to develop a still greater appetite for human 
flesh than that possessed by sheep. The State's principal object 
must be to see tlie greatest number of happy persons grow up un- 
der her protection, and only her citizens will protect her against out- 
side attack. Neither sheep nor deer will take up arms in her defence 
in the hour of need.* 

Therefore she cannot aflford to allow the letting of the national 

* In Peru and in Egypt part "i the soil was distributed to the soldiers. 
Diodorus says: "This was done to yive a solid basis to their patriotism. 
It is absurd to confide the public safety to those who have nothing m the 
country worth the trouble of fighting for." (Ch. Letourneau. "Property: Us 
Origin and Development." p. 145.) 

The famous passage from Pliny's writings where he describes the fate 
of Rome's soldiers, who did not own a square foot of land, as worse than 
that of the wild beasts which have their lair, applies to Great Britain'^^ 
soldiers who fight for a country in whose soil most of them have no pan 
whatever, while their foes in Africa were endowed with the strength of 
Antaeus through being m continual touch with their own soil. And how 
much land is owned by our own regulars? 



LAND. 51 

land become a mere financial manipulation, a question of the largest 
rental income in each special case. 

"Cash payment is not the sole nexus of man with man, how far 
from it," says Carlyle. The landowning State would soon find that 
out, and would lease the land on principles not quite following the 
mere "supply and demand" theory. Cases might arise where 
a high-born or low-born capitalist offered a million pounds a 
year for a certain county of Scotland, whereas fifty thousand 
poor crofters could afiford only £10 each, and yet the crofters 
would be allowed to continue raising oats and hearty men and 
women on the land, whereas the capitalist would have to look 
elsewhere for partridge coverts. For, fortunately, no agent of 
Lord Gobbleland or of John Brown — retired partner of Smith, 
Brown & Baker — would have the letting, as they would even 
under the Single-tax; but poor Hodges, who wants a little croft on 
which to grow potatoes for his children, and Jones, the artisan, and 
Mill, the factory hand, who want a home market for their goods, 
not barred ofT by protective Chinese walls, and who know that fifty 
thousand crofters use more shirts, coats, boots, and hats, and other 
manufactures or produce, than a dozen Gobblelands: these are the 
men whose agents will have the letting of that land. Even if these 
agents will collect £500,000 less a year, and even if the tax-paying 
power of the 50,000 tenants and their purveyors should not make up 
the deficit in the common purse, they will not mind so very much, as 
long as their — the people's — eating, their shirt and coat-wearing 
power continues to grow, which, strange to say, has more weight 
with these deluded beings than all the calculations of learned pro- 
fessors, who want to convince them that they are acting against all 
'the tenets of a sound economic doctrine, according to which the land 
ought to go to the highest bidder. That is not the State's business 
to procure employment to such men as they. That such unscientific 
proceedings would merely result in a further over-population. That 
if there is no demand in the market for their work or produce, they 
must get out of the country as fast as they can, or put on khaki to 
shoot Chinese and other people who presume that they can do as 
they like in their own country, instead of recognizing that their 
paramount God-taught duty is to buy the over-produced goods of 
Old England. The idea of wasting £500.000 rental income of the 
State to provide a market for 5 million pounds' worth of home pro- 
duce, and thus sustaining not only the 50,000 crofters and their fami- 
lies, but also many thousands more, who exchange manufactures for 
their food and raw materials! To provide, instead of this, only a 
living for Gobbleland's 50 game-keepers may be a poor policy, but 
by letting the nation's land according to the gospel of Supply and 
Demand we have at least the consolation of working within the fines 
of orthodox political economy. It is true. Supply and Demand will 
not defend England should the foreigner succeed in invading the 
country. Nor would it feed the nation if some day foreign fleets cut 



52 TlIi; IXONOMIC AND SOCIAL PROBLEM. 

off the corn fleets of distant regions; or wliere those corn-growing 
regions have joined the ranks of England's enemies. Lord Gobble- 
land's partridges certainly would not go very far towards supplying 
the necessary food; the oats grown by the 50,000 crofters might do 
more good. Their arms, and those of the artisans and mill-hands 
they provide with a living, will form a better army than the 50 game- 
keepers — otficered by Gobblcland. if he is not in India tiger-shootmg 
or taking his ease in Paris. But what does all that signify when 
(jobbleland's £500,000 additional land tax is taken into considera- 
tion? 

Otherwise the system of administration of the public land need 
not give us much concern. We have enough precedents to prove 
that the of^cials of public bodies are as capable of undertaking this 
work as the agents of our landlords. The Prussian administration 
of the royal domains may be considered the model of a perfect man- 
agement, and the Birmingham administration of the land belonging 
to the city is accounted as, at least, equal to any management of 
private landlords. Neither will the (juestion how the management 
and revenue is to be divided between the central and local govern- 
ments offer insuperable difficulties. 

The length of leases o.r, rather, the periods of revaluations of 
rents, present a more disputable field. In any case. 1 do not think 
that these periods ought to extend as far as many leases of city 
property given by English landlords, i.e., 99 years. The only ad- 
vantage which the private landowner mav find in such long terms 
does not exist for public bodies. The former has the tendencv to 
prefer benefits obtainable during his own life to the superior oppor:- 
tunities of his successors. A tenant who obtains a 99 years' lease 
will certainly pay a somewhat higher rent than he would for a« 
shorter lease. The additional amount thus realized by the lessee may 
be a mere trifle when compared with the loss in the next genera- 
tions, with their largely increased rental values; but the proverbial 
bird in the hand will not fail to claim its superiority over the bush 
species. Public bodies, however, are longer lived tlian individuals, 
and though, unfortunately, often addicted to a very short-sighted 
policv, are not c|uite so inclined to sacrifice the future for the pres- 
ent. The long-lived lessor will find it good business to take ad- 
vantage of the short-lived leasee's natural inclination to value the 
shilling which he himself enji ys higher than the pound which he 
might save for his unborn descendant, and to prefer shorter leases at 
lower rents to longer leases at, presently higher — but in future rela- 
tively much lower rents. The privilege reserved by English land- 
lords of confiscating improvements after the longer lease has run 
out does not add much to the inducement of the long lease, and 
prevents improvement on the property towards the expiration of the 
lease. 

With regard to urban lands I should prefer the system 
adopted by the City of Wellington, New Zealand, in its leases 



LAND. 



53 



of the reclaimed land (land formerly covered by the bay and 
now nearly the most valuable business location). The land 
is leased for a term of 21 years at a stipulated rent. The 
tenant has to pay rates, taxes and assessment. At least six 
months before the expiration of the lease the tenant can demand 
a valuation of the rent for another term of 14 years, and so forth. 
Three valuers are appointed; one by the tenant, one by the corpora- 
tion, and the third by the two valuers thus appointed. In ascertain- 
ing such new rental, the valuers shall not take into consideration 
the value of any buildings or improvements then existing upon the 
premises, but they shall value "the full and improved ground-rental 
of the premises" that ought to be payable during the new term. The 
corporation prescribes the kind of building which the tenant has to 
erect on the land. The tenant has a right to have his lease renewed 
by the corporation at the new valuation. If he does not demand a 
valuation, it means that he has no wish to renew the lease; and the 
corporation enters into possession of the land and improvements 
without paying for the latter. The tenant's only chance to get com- 
pensation for them is to find a party who takes the lease ofY his 
hands and pays him for the improvements. 

■ Of course, it may happen that these improvements, though 
they have been very costly, are worthless under the circumstances. 
Let us suppose, for instance, that when the tenant took the lease, the 
quarter of the city that he erected buildings in was looked upon 
as a fine location for residences, but, through the growth of the 
town, had become a business locality — as has occurred in certain 
portions of most American cities — and in consequence of this 
change, the ground-rent for the land has been considerably raised. 
In this case he could only recoup by increasing the rent of the resi- 
dence built on the land, which is impossible, because the locality is 
much less desirable for such a purpose than it was before: whereas 
its inner arrangements render the house absolutely unfit for busi- 
ness purposes. As the higher rent can thus be recouped only by 
pulling down the house and building business premises on the 
ground, no tenant could be found who would pay more for the house 
than what can be obtained from parties contracting for its re- 
moval. Or busmess premises might have been erected which were 
perfectly suitable 21 years before, and paid well at the lower rent; 
whereas now, when the rent is raised, only a building of much larger 
dimensions could be made to pay. If the land were freehold, the 
owner would not hesitate to pull down the old building and erect 
a new one, provided the increased rent not only pays the interest 
of the new building, but, if capitalized, also soon refunds the cost of 
the old one; or in other words, provided the unearned increment 
obtained from his land amply compensates him. But under the 
changed conditions this increment goes to the community, and ten- 
ants, in tendering, have to take into account any possible loss on 
their improvements. They will not rent unless they feel sure that 



54 THE ECONOMIC .\.\1) SOCIAL l'ROl!I,K M. 

the rent they pay will allow them to lose on the improvements when 
the lease runs out. 

The condition that the tenant has to pay rates, taxes, and assess- 
ments of any kind under the Wellington system renders a special 
betterment clause unnecessary, which, otherwise ought to be in- 
serted in every lease of public land and, meanwhile, ought to form 
part of our land tax laws. 

Any increase m the rental value directly traceable to public im- 
provements made in the neighborhood of an}' property ought cer- 
tainly accrue to those who pay for such improvements. Even unaer 
the Wellington Corporation leases, where the city benefits by such 
improvements after 21 years, there is no reason why the lessee 
should obtain the full benefit of any betterment through public im- 
provements made while his lease runs. 

A new municipal tram line passes the land he holds; a public 
railway station is erected; a ])ark is opened m its immediate neigh- 
borhood, or the street is widened. All this is done at the expense of 
the public It w'ould certainly not be fair to make a present to the 
lessee (under present conditions to the landowner) of the increase 
in rental value thus created, which was not expected at the time the 
lease (purchase) was made; to let him reap wdiere others sowed. 
The betterment clause would force him to contribute to the im- 
provement in proportion to the profit he derives from it, giving him 
the benefit of the doubt as to the exactness of the assessment. 

A very valuable lesson in land administration has been supplied 
by the little State of Hamburg, in Germany. W'hen the new free 
port was constructed in 1884. a contract was made between the Sen- 
ate of Hamburg and the Norddeutsche Bank, by which 30,000 
square metres of the 40,000 square metres (ii acres) belonging to 
the State in that section w-ere — not sold or given away, as our short- 
sighted government sold or gave away land traversed by our rail- 
roads — but leased to the bank, on terms which left in the possession 
of the community the increase of value certain to follow the im- 
provement created. It was done without any ojDpressive condition 
against the bank, and the company founded by it — both which did 
a profitable business. The State became, so to say, a partner of the 
company, putting in its land against the company's capital. The 
buildings were valued at 300 marks per square meter, while the 
State put in its land at 500 marks, and shared in the profits at the 
rate of 5 to 3; every surplus beyond 3/<2% being counted as profit. 
In this way the State has received a yearly rental of 525,000 marks 
since 1889 for its 8 acres. But that is not all: ior, beyond its share, 
the State obtains another 10% of the net profits made by the com- 
pany, after the 3^% and a moderate reserve are deducted, and this 
10%, with the accumulating interest, is employed to purchase for 
the State shares of the company. A yearly lottery determines the 
numbers which have to be given up for this purpose at par. In the 
year 1900, the State had thus obtained shares to the amount of 



LAND. 55 

223,000 marks. Finally, since 1899, the State has the right of pur- 
chasing the remaining shares at a price not under 110% and not 
above 150%. It is calculated that without paying out a single penny 
the State will own the whole property within 50 years. The Deutsche 
Volksstimme, from whose 2nd August number of 1900 I extract the 
above information, says that this system, which thus rescued the 
land from private speculation and made it subserve the public in- 
terest, has in no way hurt the development of the Hamburg free 
port; nor have buildings of inferior value been constructed on the 
leased ground. On the contrary, the buildings, constructed on plans 
approved by the State, are of a superior quality, and the company 
has not found the least difificulty in obtaining mortgages. Eight 
million marks have been borrowed in this way on a building value 
of about double the amount. The dividend has been 5% of the 
capital invested, which in Germany is considered quite satisfactory. 

Enough has been said to prove that practical business men can 
devise as good systems of land-use for the community as the land- 
lords have been able to find in the past; better ones, in fact, because 
the landlords only consider their personal advantage, which, as we 
have seen, is not identical with that of the community. The com- 
munity will let the land on a different plan, certain to bring not 
only greater financial results, but also more beneficial to the citizens 
as a whole. 

I have now shown that as a method of land restoration, land 
nationalization is preferable for various reasons to the Single-tax. 
First, because it does not sacrifice principle to expediency. It stands 
for a straight and full restoration of the land to the people, while 
the Single-tax leaves it in the possession of the present landowners, 
which can never yield the full benefits expected from land restora- 
tion, as it preserves many of the old abuses and does not even pre- 
vent the return of those which it reformed. 

I have also shown that the inferiority of the Single-tax sys- 
tem to land nationalization is due not only to principle, but ex- 
pediency. While land nationalization can be carried by methods 
commending themselves to the justice and fair-play of the average 
citizen, the Single-tax appeals to the instinct of spoliation and thus 
can never hope to convert a majority of the nation. I have further 
shown that the dishonest method is practically also the costliest 
and slowest. 

The result of the false policy adopted by Henry George and 
his followers has been that, during a quarter of a century's agitation 
practically no progress has been made towards land-restoration on 
Single-tax lines in this country. I believe that the great man has 
almost as much retarded land restoration, by the advocacy of a false 
method, as he has furthered it by his general work. The very word 
"taxation" stinks in the nostrils of the overtaxed American, while the 
idea of nationalization becomes more popular from day to day. The 
service done by our railroads, express and telegraph companies has 



^6 THE ECONOMIC AND SOCIAL PROBLEM. 

been found bad and expensive; their }:)olilical influence pernicious 
and, in spite of the efforts made by the interested parties, wlio even 
founded a special bureau for the purpose of spreadmg lies through 
the press as to the failure of nationalization and communalization 
wherever tried, the conviction gains ground that, no matter how 
objectionable nationalization might be, it could certainly not pro- 
duce worse results than the present system. The real facts can not 
well be quite suppressed. Foremost among them that Prussia now 
clears 135 million dollars a year from her nationalized railroads, by 
which her debt could soon be paid ofif without levying any special 
lax, in spite of better service, lower passenger rates and one-tenth 
of accidents per passenger mile. State railroads are found m over 
fifty other countries, and I think this country stands alone as one in 
which not only the railroads, but even the telegraph, and parcel 
service are private monopolies. Finally the question is bound to 
force itself on the public why what is so successfully done else- 
where cannot as well be carried out here. 

Consul-General Richard Guenther, writing from Frankfort 
(Consular Report. I'riday, May 10, 1907), says that the Prussian 
State railroads, after payment of the interest of the debt, showed m 
1906 an excess of earnings over expenditures of $135,650,000 (565,- 
200,000 marks). From 1882 to 1904 the excess in earnings has 
amounted to $1,205,000,000. These sums represent from 6 to 7 per 
cent, of the capital originally invested in the roads; and from 14 to 
i6 per cent, of the capital debt as vet not repaid out of the earnings. 

If the followers of Henry George had done their duty, if his 
unfortunate errors had not switched them into the Single-tax sid- 
ing, the popularity of land nationalization might be further ad- 
vanced than railroad nationalization. It is high time that an Ameri- 
can land reform league should take the lead in this great fight, in- 
stead of leaving the honor to socialists. The latters' error of press- 
ing for the nationalization of much else that had perhaps better be 
left in private hands, at least for a time, will be less and less in the 
wav of their victory if they remain the only champions of free land, 
if the pretenders of the championship continue to fight for a lie 
that calls highlv taxed land, free land. Those are the most danger- 
ous reactionaries who keep progress back by pretending to fight 
its liattle. 

There is still time to make the change, which, after all, is only 
one of methods; not of principle. 

History has often supplied the prot)f that great men's followers 
are far less accessible to compromise than their leaders. Henry 
George supplied me with a proof of this in 1889 at Paris, where, sup- 
ported by him and William Saunders, of London. I had called a Con- 
gress of the difTfercnt schools of land reformers. When the tenor of a 
joint resolution was debated, he tried to have it run on .Single-tax 
lines, but, finding no support outside of his direct followers, he 
finally joined us in the acceptance of the resolution, which then 



LAND. 57 

was unanimously passed by the Congress. The final line of this 
resolution reads: "This meeting declares that individual property in 
the soil must disappear and become replaced by appropriation for 
the benefit of all." As a contrast to this conciliating attitude of the 
master, let me exhibit that of one of his disciples, Mr. J. Dana Mil- 
ler, who in June, 1907, refused for his "Single Tax Review" a free 
contribution, in which I put up for discussion the question of a 
change of methods, for ^ which I think the time has come. 

The nationalization of public utilities; of railroads, telegraphs, 
telephones and parcel-service, would further land nationalization as 
much as the latter would support the agitation for the nationaliza- 
tion of public utilities. The close relation between them will pres- 
ently be illustrated. I do not wish to see my opposition to the Sin- 
gle-tax misconstrued. I am fully aware that there is much to be 
said in favor of a tax on land values. I attack the plan only because 
it comes before us with the pretension of supplying the best method 
of land restoration. For such a purpose it is not only the worst 
proposal that could have been made at all events in this country, 
but it marches under false colors by overstepping the dividing line 
between taxing and confiscation, or robbery. An uncertain dividing 
line, anyhow, for any robbery may be called a tax; any tax may be 
raised to the point of confiscation. 

The very history of taxation proves this. Taxation originated 
in robbery, and robbery finally became reduced to taxation, either 
through the resistance of the robbed, or because it did not pay to 
kill the goose that laid the golden eggs. The robber knights at first 
robbed the passing merchant of all his goods and often of his life. 
The armed people of the cities or the Imperial forces destroyed a 
number of their castles. The fact now .impressed itself upon the re- 
maining robbers that dead merchants do not bring merchandise 
and that the danger of loss stopped commerce; so that to take all, 
finally meant to get nothing. Thenceforth only a certain portion 
of the goods were stolen. In the course of time the stealing business 
became a vested right; and, when the State took over the knight's 
vested rights, the knight's toll became the State's tax, the progenitor 
of customs duties. 

The origin of income and inheritance taxe^ is not a whit more 
reputable. The robbery of the whole income and heritage finally 
stopped the creation of incomes and heritages and had to be limited; 
after which it took the name of income and inheritance taxation. 

Thus a certain amount of confiscation, of robbery, adheres to 
any system of taxation, and to find out the exact dividing line be- 
tween robbery pure and simple, and the exaction of a fair contribu- 
tion towards common needs, constitutes a special department of 
political economy, called: the Science of Taxation, 

Therefore, one may look at Single-taxism without compensa- 
tion as a robbery of present bona fide landowners, and still advo- 
cate a reasonable land tax, or ratJier a land value tax, by which is 



58 THE ECONOMIC AND SOCIAL PROBLEM. 

meant a tax on the value of land apart from nnprovements. Such a 
tax unites the two criterions of a just tax: benefit received with 
ability to pay. Even in conservative Germany a heavy municipal 
tax begins to be levied upon building lot profits, as it is recognized 
that generally such profits are created entirely by the community 
and not by the work of the landowner. Strong evidences of this 
well known fact have been lately brought into special notice by the 
large increase of values due to elevated and subway railroad con- 
structions in some of the great centres: New York, London, and 
Berlin, especially. In some cases the price of suburban property 
has increased more than four fold in the course of a few months. In 
London, for instance, there is a suburban building zone from five 
to ten miles from the centre, where blocks of houses are standing 
on land of i6oo lease value. After the construction of the Tube, 
some of this land has been let at ground rents ranging from £2,500 
to £3,000. A striking instance of how such improvements, instead 
of benefiting the tenant, benefit only the landlord, was given after 
Waterloo-bridge, in London, was thrown open to the public, free 
of toll. The saving to the workers living near the bridge on the 
right shore who had to come over the bridge every day, which 
amounted to six pence a week, was at once added to their rent. In- 
crease of wages has the same effect. During the late tory ministry 
in England it was officially stated how little the government em- 
ployees at Woolwich profited by a rise of wages because rents rose 
with them. It has been correctly pointed out by Henry George 
that if a benefactor willed a yearly pension to every inhabitant of 
a certain town, the only effect which such a benevolence produces 
would be a corresponding rise in rents and land values. To enjoy 
this pension, people would have to move into the town, and as this 
is impossible without living on the land, the landowners would de- 
mand in higher rents or land prices the full equivalent of the benefit 
thus connected with a residence on their land. 

That a land value tax is an equivalent for benefit received from 
the community and thus also corresponds to the taxpayer's ability 
to pay, is not its only recommendation. With one of the arguments 
in its favor the one generally adduced by Single-taxers, viz. that 
it cannot be shifted, T do not quite agree. Though it is true that as 
a rule the landlord takes all he can extort from the tenant, this 
power of extortion depends in the last resort on the rent-paying 
power of the latter. Now, as any tax relief obtained by the tenant 
raises his rent-paying power, the landlord may certainly recoup, by 
a higher rent, any tax shifted on his shoulders from those of the 
tenant. If a tenant j)ays $300 rent and $50 taxes and you make the 
landlord pay the $50 taxes, will not the rent at once rise to $350? 

This is entirely in agreement with Henry George's own teach- 
ing, according to which all progress in the last resort increases the 
landlord's rental income. Now, the Single-tax would certainly 
mark a great progress over our existing system of taxation, and 



LAND. . 59 

thus would increase purchasing and rent-paying power all round, 
which according to George's own theory, raises rent proportionately. 
If this is not shifting", what is? 

And if all taxes were abolished for the Single-tax on land 
values, would it not enable the tax saving tenants to pay higher 
rents? Rents would rise m exact proportion with the economized 
taxes, if it were not for the land kept out of use by speculation 
which is offered cheaper in consequence of the higher tax. How- 
ever, we must not count too much on this element of the calcula- 
tion ; because once the landowners got over the loss caused by the 
imposition of the Single-tax, they would find as ample compensa- 
tion for holding land out of use, in the increase of rents, and con- 
sequently of land values, as they do now. Of course, the new in- 
crease of rents might be taxed away, too, the proceeds being used 
for public improvements; but these, too, have a rent-raising eiifect; 
and thus Rent would continually race ahead of the Single-tax. 

There is one way only which precludes shifting of land taxes» 
and that way is closed to Single-taxers. Instead of using the pro- 
ceeds of the tax for the relief and benefit of the tenants, they ought 
to be applied towards the purchase of privately owned land — whose 
price the tax would cheapen in this case — for the community;, 
in other words, to further land nationalization. No shifting then, 
because there is no relief of the tenant's taxes, the rackrenting 
finds its only antidote: the community's competition in the land- 
leasing business. 

This rackrenting, this charging all the traffic can bear, i.e., all the 
tenant can afford, is also the answer to the attacks against building 
laws, which force the landowner to restrict the height of houses, or 
to leave open certain parts of the space. Such laws do not raise 
rents, as is pretended, for rents are always at their highest, but they 
lower the value of the land. Nothing has, on the other hand, so 
raised the value of land in the business part of American cities as the 
invention of sky-scrapers, which permit the use of more of the air 
space which belongs tq the landowner. Office rents have not fallen 
in consequence of this putting half a dozen houses, one upon the 
other, but the ground, which thus is better exploited, has corre- 
spondingly increased in value, so that the most expensive sky- 
scrapers are not as costly as the land on which they are erected. 
Or rather, the land which was formerly worth only a little more 
than the low house on it, is now more valuable than the high build- 
ing it supports. If ever we should succeed in building a hundred- 
story edifice, rents will not fall, but the land on which such houses 
stand, or are to be erected, will correspondingly rise in price. The 
first separate assessment made in 1904 of land' and improvement- 
values in New York City, has developed the astonishing and un- 
expected fact that in those quarters, in which the most expensive 
and luxurious buildings are to be found, the value of the bare land 
is greater than that of all the improvements. The total valuation of 



6o . TITF. FXONOMIC AND SOCIAL PROBLFM. 

real estate in greater New York was $4,798,344,789. of which ihc 
land was assessed at $3,679,686,935 and the improvements at 
$1,100,657,854. so that the percentage of land valuation to valuation 
of real estate was 7/'% to 23%. If we take the borough of Manhat- 
tan alone, where piactically all the costly structures are situated, 
their value only amounted to $600,000,000, while the land was 
assessed at $3,000,000,000. five times as much Ten of the most 
recently constructed sky-scrapers aggregate a cost of $9,543,000, 
while the land on which they stand was assessed at $16,072,000, 
70% more than the buildings Sixteen ot the leading hotels, includ- 
ing the Waldorf-Astoria, were assessed at $6,445,000; the land on 
which they stand, at $20,805,000. Ten of the larger and more costlv 
mansions on Fifth avenue are assessed at $5,065,000; the land at 
$13,355,000. 

Taxes on land where they do not relieve the tenants, or laws 
restricting its use, not only do not raise rents, but they have the 
very opposite effect; they lower rents; paradoxical as it may sound. 
They do this by forcing the speculative owners of unoccupied land 
to hasten its sale, all such restrictions and taxes reducing the ex- 
pected profit; and making it more expensive to wait for the final 
recuperation. 

The present system has the effect of favoring the speculator who 
holds land out of use, in the face of an urgent demand, until he can 
secure his usurious price; while it punishes the improver by taxing 
his improvements. Here is a man who erects a fine house, an orna- 
ment to the place, and at once he is fined for his bad action by a 
heavy tax on this house. Next to him is a plot full of weeds, or of 
the garbage from the neighborhood, owned by a speculator who 
finds his land increasing in value in consequence of the new build- 
ing. This man is encouraged in his dog-in-the-manger game by 
the low tax on his unimproved land. In some countries this tax is 
not even levied on the selling value of the land, but on the income 
derived from it, which in svich a case is practically nil: agricultural 
rent on city property. It seems unbelievable that the League of 
German Land Reformers has had to fight for laws that change as- 
sessments levied according to rent actually derived, into assessments 
on selling value. At last town after town adopts the new system, 
and the householders who, through ignorance, oppose the reform, 
find themselves benefited by it. as it hits only the speculative holder 
of unimproved land. 

Another advantage of the land tax is that it cannot be dodged; 
as the taxable object is evident before everybody's eyes. The tax 
could also be made an excellent accessory to land nationalization 
if a plan, often proposed, were adopted in connection with it, i.e., 
allowing the landowner to be his own assessor, with the understand- 
ing that the community is to have the privilege to purchase from 
him at any time at the assessed price. The taxpayer thus finds him- 



LAND. 6l " 

self between the Scylia of paying too much in taxation and the 
Charybdis of receiving too low a price for his land. 

I have adduced enough to prove that if the American followers 
of Henry George were content to style themselves tax reformers, 
they would be accepted as valuable helpers in fiscal reform; though 
in this case they could hardly pretend to the position of workers for 
a thorough social reformation. But they call themselves Single- 
taxers; they want to make the land-value tax, the sole tax; and a 
tax productive enough to permit the abolition of all other taxes; 
which practically means a confiscation of the rental value of the 
land, the basis of its selling value. They thus leave the domain of 
tax reform to enter that oi robbery, pure and simple; and in this 
way they have become the worst enemies land restoration ever had. 
Their very name is obnoxious to the two opposite wings of the com- 
munity; the fair men who want to combine reform with justice, and 
the revolutionists who aim at the subversion of all property rights. 
To one they are mere robbers; to the other timid weaklings who 
do not dare to face the full consequences of their teachings. 

In another way their agitation has injured land restoration, i.e., 
by misleading land nationalizers. One wrong is generally the father 
of another. The Single-taxers' wrong, of preaching the confiscation 
of private rent to relieve the landless from all taxation, has be- 
gotten the unjust proposal of land nationalizers to use the public 
rental, after it has been restored to the people and thus belongs to 
all equally, for the relief out of the public purse of those who justly 
pay more than the average share of taxation. Whereas in the one 
case the rich are to be robbed to relieve the poor; in the other the 
poor are to be robbed to relieve the rich. Land nationalizers forget 
that the idea to use the rental income for public expenses, though 
logically in the Single-tax plan, of which it forms the very essence, 
in reality is absolutely out of place in their own scheme of restoring 
the land to the people. Taking the rental from private landowners 
in the form of a tax means, if the point of confiscation is left out of 
sight, that each landowner is ta.ved according to the benefit he re- 
ceives from the community through the use of the land he owns. 
However, the case changes where the land has been honestly 
bought back by the people, and where the land-users rent this land 
from the community. Their rent is a fair equivalent for the benefit 
they receive from the land; but it is no more a tax. It is a rental 
income belonging by right in equal parts to the landowners: the 
people of the country. Public expenses ought to be paid by means 
of taxation as before, and on the most approved principle; i.e., each 
citizen ought to pay taxes in proportion to the benefit he receives 
from the State. To confiscate the common rental income for public 
expenses under the new conditions would work a similar injustice 
on most of the new landowners as the Single-tax would on many 
of the present ones. It would mean that each citizen is to pay «is a tax 
his equal share in the national rental, though his dues are unequal 



'62 THE FXONOMIC AND SOCIAL PROBLEM. 

on the benefit-received principle; for the rich receive greater benefits 
^rom the pubHc than do the poor. The whole apparatus of public 
defense, of police and of justice, protects property; while the funds 
spent for public education in its higher branches benefit the wealthy 
far more than the poor. Is it just to force the poor to pay as much 
as the rich for the soldiers and policemen to protect their property? 
Yet this is exactly what would be done if the share of the poor in 
the national rental were used for public expenses, instead of being 
paid over to them or used otherwise according to their wishes. To 
assume that these wishes run in the direction of relieving the rich 
of their just proportion of taxation is certainly an idea which might 
never have occurred to land nationalizers, if Henry George's con- 
fiscation plan had not been first in the field, in which the heavier 
load it lays on the wealthy to some extent is equalized by the greater 
benefit they obtain out of the tax fund, which in so far lessens the 
wrong inflicted. Land nationalizers do away with this wrong alto- 
gether; but, forgetting the exceptional conditions under which the 
proposal to use the common rental income for common needs had 
arisen, they adopted this part of George's plans, though they re- 
jected those features of his teachings which alone could justify it. 
I repeat, while George's plans involved robbery of the rich, the use 
of the common rental, bought with common funds, for public ex- 
penses, means simply robbery of the poor. This is not only an in- 
justice, but also a bad policy; for it means leaving unused the best 
weapon in the arsenal of land nationalization. 

The share of each family in the United States in the common 
rental may be estimated at about $200 a year. The prospect of 
obtaining by legal methods such a contribution to the budget of 
the workers, or a correspondingly high insurance in the case of 
invalidity and old age (at least $600 a year) would call forth quite 
another enthusiasm for land restoration than the mere hope of a 
relief from taxation figuring up to a much smaller sum for the 
man of the people. 

There would not be found insuperable difificulties in the way 
of raising a public revenue by a just and sufficient taxation without 
any taxation of the land. The income tax, if imposed where the 
income is made, not where it is spent, not only works on the ability- 
to-pay principle, but also on that of benefit-received; for, without 
the help of the community no income can be obtained. Alcohol 
and tobacco, if the monopoly of their sale is given to the State, 
could be made to produce a very large fiscal revenue. This also 
would be a tax on the ability-to-pay principle, because nobody is 
forced to use these noxious commodities; and though the tax-payer 
certainly does not enjoy an equivalent in any benefit received — 
rather the reverse — he would at least indemnify his fellow-citizens 
for the damage done them by his use of the two poisons — h\ the 
one through the employment it provides for our police, crinn'nal 
courts, prisons and asylums; by tlie other through the contamina 



LAND. 63 

tion 01 the air and the injection of poisonous gases into the lungs 
of his fellow-citizens. 

We shall see in Chapter VIII how an extension of the State's 
monopoly of distribution from one or a few to all products would 
by itself yield such enormous savings that a fraction of them would, 
if put aside for public expenses, suffice tO' amply provide for them. 
Savings due to the work of society are certainly not wrongfully 
used for the benefit of all. 

Inheritance taxes on fortunes above a certain amount, supple- 
mented by the substitution of the State for indirect heirs, where no 
will is made in their favor, might supply another bountiful source 
of revenue. 

Before closing this chapter, I have to say something more on 
a subject already touched upon, nearly related to the land question 
and now in the centre of public discussion: Public ownership and 
management of public utilities. It is one of those important ques- 
tions which are yet opnjn in this country, despite the unanimous 
favorable verdict passed upon it elsewhere. I refer to the reports 
of Professor Frank Parsons in his "Railways, the Trusts, and the 
People." The facts given are of the highest importance ; the argu- 
ments lucid and convincing. I have to limit myself to a few points. 
Concerning the fear of political influence and graft. Parsons 
finds it easy to prove from the examples of Germany, Holland. 
Belgium and Scandinavia, as well as Australia and New Zealand, 
that independent railroad boards and civil service regulations have 
proved an effective protection against this danger. Anyhow, in 
this country an objector to railway nationalization on such grounds 
would present the case of the passenger on a storm-tossed boat 
who jumps into the sea for fear of drowning. The worst that 
public ownership and management could do would be nothing 
compared to what private ownership and mismanagement has been 
doing, and is doing, in this country. 

Professor Parsons correctly says on page 516: "In answer to 
the objection that government ownership would put the railroads in 
politics, we may ask: 'Where are they now?' It is doubtful whether 
they could be in politics in any worse form than they are to-day, 
and it may be further remarked that it is not*'necessary that the 
railroads should be in politics at all is the objectionable sense, under 
a common-sense system of public ownership with a non-partisan 
commission, railway courts, and solid civil service organization, such 
as is provided for in the Pettigrew Bill." To this, a quotation from 
Professor Richard T. Ely is added: "Our American railroads are in- 
comparably more 'in politics' than the German railroads. Not only 
this; those German railroads which have been bought by the State, 
I believe, are less 'in politics' than they were when they were private 
property. Our terrible corruption in cities dates from the rise of 
private corporations in control of natural monopolies, and when we 
abolish them we do away with the chief cause of corruption." 



64 THE FXOXOMIC AND SOCIAL PROBLEM. 

The defenders of the existing i)rivate monopolies must find it 
rather a hard task to frighten the people with possible abuses of 
political power under National ovvnersliip. when even the worst 
abuses of this power could not l)egin to approach those continually 
perpetrated by the existing monopolies, which own legislatures, 
courts and press. Next to the political bugbear, the inferioruv of 
public management to private management is usually put into the 
foreground of the discussion. This reasoning is due to a kind ot 
atavism, an inherited notion under whose influence we overlook the 
fact that "private management" in our father's tmie was entirely 
different from that of our existing corporation'^. The master and 
owner of the little workshop, with his few ior.rne\ men, vvlio practi- 
cally was only the foremost worker of the ^^hop. or the owner of 
the little factory, in continual personal contact with his employees 
and hands, represented private management in its good sense. That 
of our corporations has mostly preserved only the bad side of private 
management: its personal greed, while it lacks the good sides of 
public ownership and operation: devotion to the public good. 
What guarantee have we that a stock company is sure to bring 
better managers to the top than the public administration r* Is the 
control of the largest number of shares, through ownership and 
proxies at a stockholders' meeting, a better test of efficiency than 
that of the largest number of votes at a national, state or city elec- 
tion? Is the method of procuring the votes so vastly superior in 
one case than in the other? And the result? I entirely agree with 
Professor Richard T. Ely, where he says: "Management of the pub- 
lic finances so corrupt as that which has characterized the private 
railways of the United States, would have produced a revolution 

long ago For every failure of municipal ownership and 

management which it would be possible to adduce, twenty failures 
of private ownership apd operation could be named." 

The most corrupt political bosses this country ever produced, 
from Tweed to Cox, from Sweenev to Quay — and in this specialty 
America beats the world — are poor bunglers in grafting compared 
with some of our great railroad chiefs. It is questionable whether 
the "earnings" of all the bosses in the Union during a whole gener- 
ation reach those of the great Harriman alone. The methods of 
the graft may differ; the result remains the same. 

But why do we assume that ])ublic management in this count rv 
v\ould be sure to be inferior to private management? The follow- 
ing facts stated by Professor Parsons seem to prove the reverse. 
"As high as 20 per cent, of the railroads of the United States have 
been operated at the same time by government agents called re- 
ceivers, and the success and honesty with which these public man- 
agers, responsible to the Federal courts, performed the duties of 
their calling under infinite difficulties, bringing the roads back to 
prosperity after they had been wrecked by private enterprise, shows 
the possibilities of public management of railroads under reasonable 



LAND. . 65 

• 

safeguards. The very same men that now manage our railways 
would gladly manage them with equal ability, far more justice and 
public benefit, and infinitely more happiness, if they were the. hon- 
ored and respected servants of the Republic, than as they are now, 
the suspected, accused, and condemned leaders or agents of the 
forces of predatory wealth that are preying on the public, defying 
the law, and corrupting the government, and are denounced by 
many of our best people as enemies of the Republic and guilty of 
treason under the Constitution." 

To get at the core of the partiality for private management, 
we find it due to its effectiveness during a period now more and 
more receding: that of competition. We are too apt to forget that 
this competition gradually becomes a thing of the past in the dis- 
tribution (exchange) and transportation of products. Concentration 
brings such immense advantages into this domain that it saves far 
more than the most effective management, due to the competitive 
struggle, could ever yield. Take the case of a hundred competing 
post-offices splendidly managed by a hundred commercial geniuses 
and imagine the cost of a letter when, compared with that obtained 
under our centralized system. The waste through competition in 
this case would far outweigh the savings attained through a better 
organization. The organizers of our corporations know this, and 
their best efforts are successfully directed towards a centralization 
of their enterprises, in spite of the ridiculous Sherman law. It is 
estimated that seven men now control the railroads of this country, 
and when centralization has so far progressed that all the roads are 
managed from one central point, the service can be made still more 
effective, waste can be still further eliminated. We are coming to 
this, and if we come to it, the saving will not be due to the genius 
of the manager, but to the fact of the central management. But 
even if this were otherwise, and if private management provided 
better men than universal suffrage, would the public benefit by the 
greater success of the monopolists' chief? Does it now benefit by 
it? The crisis which is already thundering at our doors, while this 
is written, is certainly not an affirmative answer. And if we go 
so far as to admit the temporary advantages of allowing the super- 
man's domination, the effects on the race are certainly pernicious. 
The worst effect, however, is found in the mortality of the super- 
man, who very often is superseded by idiot heirs, whose power is 
established without the brains to make it beneficial to anybody. 

I here refer to what the opening pages of the chapter on De- 
mocracy contribute to this subject of dominion by the enlightened 
minority over the ignorant masses. 

The ignorant masses! To whom is their ignorance due and 
why should not better men rise from their ranks than the best now 
at the head of our affairs? The community will find such men at 
its service after the present avenues are forever closed, where ambi- 
tion finds its best paying remuneration, from the paltry standpoint 



66 THE ECONOMIC AND SOCIAL I'KUULE.Vf. 

of the dollar. The very class of men we find now at the hoatl of 
our big corporations will then try to force their way to the direction 
of the public administration, as Professor Parsons indicates. But 
the people begin to find out that it is not merely a question of dol- 
lars; that considerations of a far higher nature are coming into the 
foreground. It is a question whether the corporations are to own 
the nation; or the nation the corporations. 

Smithianism has been too long dominant in political economy; 
its sway over universities, press and rostrum has been too general 
to yield' at once even to the most stubborn facts, or the revolt would 
have come long ago. Land nationalization would, however, bring 
such powerful forces to the side of public ownership against the 
private corporations, that the victory would soon be won. Between 
land and public utilities the most intimate connection exists. A 
railway or tram-line stands in the same relation to the adjoining 
land as a lift in a sky-scraper stands to the rooms of the building. 
Without this improvement the rooms would only have a fraction 
of their present rental value; and without the railway or tram-line 
the lands it connects with the centers would be far lower in price. 
The lift is the vertical railroad, the railroad the horizontal lift. To 
give the right of running and owning the lift to an outside party 
would be just as sensible on the part of the house-owner, as it is on 
that of the people as owners of the land to let private parties own 
and run their h.orizciital lifts, their railroads and trams. The lift- 
owner would have it in his power to determine the rent of the rooms 
according to the rate of his fares demanded from the occupants and 
their visitors; a power virtually exercised by the owners of our 
means of transportation. The horse-owners run their lifts free of 
charge, and can well aflford to do so, because they obtain cor- 
respondingly higher rents. So the community as land-owner could 
afford to give general free transportation and still do a good busi- 
ness, in consequence of the higher rents which the land thus served 
would fetch. 

Landownership and transportation, like Leda's twins, thrive 
best when unseparated. Independent transportation enterprises 
often starve, though land values along their lines rise materially 
through their activity; and land values are kept low where the trans- 
portation monopolies take all the traffic will bear. Together they 
are a strong thriving unit. The same principle holds good for the 
supply of gas, water, electricity, telegraphs and telephones. 

The question of compensating present owners of public utilities 
is as easily solved as that of compensating landowners. In both 
cases growth of population increases the mcomcs out of which the 
purchaser gradually cannot only pay the interest on the capital, but 
obtains a growing fund for redemption of the debt, a fund largely 
increased through the falling of the interest rate. To be absolutely 
just in the valuation of such properties we must try to get over the 
perfectly natural attack of hydrophobia (fear of water) which we 



LAND. 67 

are experiencing when we meet with their inflated values. As a rule 
the market price expresses the capitalized value of the income de- 
rived from the properties or expected in a near future. It is identi- 
cally the same case as that of land values. To offer our corporations 
mere payment of cost of construction and of running- material would 
be like offering to the landowner the value of his improvements only. 
To offer first cost, including the cost of the right of way, would be like 
offering the landowner first cost of his land plus improvements. 
Justice in both cases demands that we pay present market values, 
which include a lot of water, said water being the capitalized value 
of incomes obtainable from the property over and above the interest 
on the original outlay. It makes not the least difference in which 
way the price of the water is expressed, whether in a low nominal 
capital, accompanied by a high stock exchange quotation, or a high 
nominal capital and a lower quotation. I give an illustration. (See 
Pohlmann in "Deutsche Volksstimme.") The French "Compagnie 
des Mines de Houille de Courrieres" (Courriere Coal Mining Co., 
in which over a thousand human lives were lately lost) was 
founded in 1852 with a capital of 600,000 francs, divided into 2,000 
shares of 300 francs each. Dividends began in 1857 and gradually 
rose from 150 francs per share to 2,300 francs in 1891, which means 
that the invested capital brought from 50% to near 800%. This 
enormous profit began to be compared by agitators with the low 
wages earned by the miners, which proved unpleasant, and so the 
owners managed to disguise it by inundation. In 1896 they raised 
their nominal capital to six millions, issuing 60,000 shares of 100 
francs each, so that each shareholder obtained 30 new shares for 
one of the old ones. Things looked better now : for, though the 
dividends still rose— in 1900 to 125 francs for each new share, or 
3,750 francs for each of the original shares of 300 francs— it only 
spelt 125%, not 1,250%. the real percentage, which would have too 
much horrified the public when the terrible catastrophe brought 
about by the economies of the management destroyed so many 
human lives. To the market price of the mine the watering did not 
make the slightest difference, for it matters not whether this price 
is computed in 60,000 shares at 2,800 francs a piece, the quotation 
of 1 901, or in 2,000 shares (the original number) of 84,000 francs 
a piece. In both cases the market value of the mine was 168 
milhon francs, and to expropriate it for less would have been a 
proportionate confiscation. This example shows that the often ex- 
pressed opinion that watering of stock raises the people's tribute 
payments is erroneous because based on a confounding of cause 
and effect. The tribute is always as high as the market will bear. 
The amount of the nominal capital only influences the interest rate, 
i.e., appearances, not the interest sum, the reality. 

To recognize the injustice of all proposals which tend to expro- 
priate such properties below their market value does not imply 
that the State is to buy at extravagant market prices, when it is 



68 THE FXOXOMIC AXI) SOCIAL PROIiLEM. 

in her power to press down these vakies to reasonable figures with- 
out any interference with so-called vested rights. To find out how this 
is done we may look for valuable lessons to those clever men who 
organized our trusts. They did not invent boycot and blackmail, 
but thev make profitable use of it. When they want to buy out 
a competitor they fix their own price, which he generally is forced 
to accept, though no law compels him to do so. They arrange 
conditions in a manner that no choice is left him. He finds it im- 
possible to obtain railroad cars when he wants them. His raw 
materials rise in price, while the finished product falls. The threats 
of the trust force his best customers to refuse touching his goods. 
His bank refuses further credit. Everything suddenly turns against 
him, and ruin stares him in the face, so that finally he is only too 
glad when an offer of purchase is made to him. The people when 
thev want to buy out present proprietors can profit by their example 
Avithout resorting to any injustice. They can make use of the law 
that their demand is the creator of value in the economic sense, by 
regulating this demand according to their interests. Wherever 
they find that extravagant prices are demanded for a property they 
can simply agree to reduce their demand for the product and to 
retire the laborers. What would those Courcelles mines be worth 
to-morrow if the people refused to buy another pound of their coal, 
and the workers left the mines, without others taking their places? 
Practically nothing at all. Under such conditions anv price 
offered by the nation would be gladly accepted. This price ought 
to be the capitalized profit which would remain after a reasonable 
reduction of the coal price and a just increase of wages under fair 
working conditions. Such a price would certainly not be based on 
1. 000% dividends. The same principle would hold good in the 
case of railroads wherever no exclusive monopoly has been granted 
or as soon as the monopoly has expired. New roads would be built 
by the people and nobody could blame them if they gave their ex- 
clusive custom to their own rnads. Anyhow, the State can hold 
out longer than private companies in bringing down rates and can 
thus force on sales just as the trusts have done with their com- 
petitors, with the difference that the State would only use her power 
to obtain reasonable terms, not to ruin competitors. It is the policy 
which Bismarck applied, or threatened to apply, in Prussia at the 
time when she gradually bought up the private roads. The same 
policv would be used in the case of mines, oil wells, trams, gas and 
water works, etc., wherever feasible, and in regard to land in gen- 
eral. The people need very little land for their maintenance if they 
make use of intensive culture. The desert land still owned by the 
community, if brought under a perfect system of irrigation, as mdi- 
cated in "Arid America" — the excellent work of William E. Smythe 
— would by itself sufifice to provide a large population with all the 
foodstuffs thev rccniirc. and abstention from tli(> cultivation of pri- 



MONEY. 69 

vately owned land would soon force down its price to a reasonable 
level. 

New centres built on agricultural land, on the Garden City plan 
(see Chapter VII) would depopulate the old cities and reduce their 
land prices. All this would not be confiscation, but merely a rea- 
sonable pressure on the real estate market, through the influence 
of supply and demand. 

Let the people once unite on first principles and the rest will 
be easy. No need of injustice to demolish injustice! Monopoly's 
value is based on the people's readiness to be fleeced. Let us cease 
being ready victims and vested rights will lose the most valuable 
part of their vestments or such vestments are purchasable for a 
trifle in the old clo^ market of the world's vanishing ghettos. 

The gamblers are beaten at their own game, and, as it is not 
good form to appear a bad loser, they will take their defeat much 
more calmly than might be inferred from the noise they are now 
making, while the stroke is merely impending. 



CHAPTER III. 

MONEY. 

The physical and commercial qualities of the precious metals have since 
immemorial times made them the preferred money-substances ; but their great 
scarcity, i. e., the insignificant proportion which the amount produced of this 
merchandise bears to that of all other merchandise (about 1:400), and the 
consequences of this disproportion makes the comparatively few capitalists 
the fanatical defenders and the producing and indebted masses more and 
more the inveterate enemies of metal money. From this it is easy to 
prognosticate that its final doom is sealed under the reign of universal suffrage. 

THE flood of money debates which submerged this country in the 
nineties has so wearied the people that it requires a consider- 
able degree of optimism to expect a patient hearing on this sub- 
ject. However, no full view of the great problem is obtainable with- 
out going into the Money Question, and all I can do to mitigate its 
tedium is to treat the subject with the utmost brevity compatible 
with clearness. 

Money is called the life blood of the economic body, and just 
as blood was circulating for millions of years before Harvey ex- 
pounded its laws, so money has been and is used by millions who 
have not the least conception of its real nature. Many of those 
who know most about it have a personal interest in concealing 
therr knowledge. So early as 1577 we find the keen and piercing 
intellect of Bodin remarking thus: "For men have so well obscured 
the facts about money that the great part of the people do not see 



70 THE ECONOMIC AND SOCIAL PROBLEM. 

them at all. The moneyers do as the doctors do, who talk Latin 
before women, and use Greek characters, Arab words, and Latin 
abbreviations, fearing that if the people understood their recipes 
they would not have much opinion of them." 

I do not wish to fatigue the reader with the many conflicting 
definitions given of Money by economists, but shall follow the 
course adopted through the whole of this book, of taking the word 
as nearly as possible in the meaning given to it by the custom of 
everyday life. In this sense I shall confine the term to anything 
which is legal tender for debts, i.e., which has to be accepted as the 
final settlement of a debt by the creditor to whom it is tendered.* 
In Great Britain sovereigns and half-sovereigns are legal tender for 
all debts; smaller coins are only legal tender fos debts up to 40 
shillings, and Bank of England notes for all debts above £5, except 
the debts of the bank. British coins and Bank of England notes, 
therefore, are Money in Great Britain. If I give the English system 
as an example, instead of the American one. it is merely because 
I do not want to call up at this stage the subject of bimetallism. 

Other means of payment or exchange, such as those bank 
notes which are not legal-tender, checks, bills of exchange, prom- 
issorv notes, etc., are not money, but money representatives, money 
promises. They are included with money under the general name 
of currency; but whereas money is only that which has been made 
legal tender for debts, currency is anything which passes as a means 
of exchange and payment. Money is always currency; currency is 
not always money. There are three kinds of money. 

I. Any kind of merchandise may be made money by law or 
general agreement. We might call this money merchandise money, 
or commodity money. A number of different kinds of merchandise 
have been chosen as commodity money at different times and in 
different countries. Cattle have been formerly mostly used, of 
which "pecuniary" (from "pecus" = cattle) still reminds us. Differ- 
ent metals paid out by weight come next in order. Certain shells, 
salt, fish-hooks, etc., have been or still are money in certain coun- 
tries. Whether a special form is given to the money commodity, 
whether it is marked by some kind of stamp, or whether the special 
form and the stamp exist concurrently, makes no difference so long 
as the value of the money, as such, does not differ from that of the 
raw material it contains, as is the case wtih the newly-minted Eng- 
lish and American gold coins, for instance. It is self-evident that 
the parity between the value of the coin as money and the coin as 
bullion, as merchandise exists only so long as no abrasion has taken 
place, and can only be maintained while free coinage exists, for 
without free coinage, which enables any possessor of bullion to 

* We shall yet see that "legal demand" would be a far better term than 
"legal tender." There is no great need of forcing creditors to accept money 
tendered them. Most of our calamities arise from the legal right of de- 
manding something which is less and less obtainable. 



MONEY. 71 

have it changed into coins of equal value, free of cost, coinage 
becomes a monopoly, and coins obtain a monopoly value liable to 
differ from their bullion value. Without free coinage coins enter 
the confines of money, class 2. 

2. The stamp is applied to a commodity which would fetch 
an appreciable price even if the stamp had not been added; but the 
stamp increases this value, more or less. Silver, copper and nickel 
coins at present belong to this class, and also gold coins which, 
through seigniorage or wear and tear have a higher value as money 
than they possess as bulHon. Class 2 offers a transition to class 3. 

3. The commodity value has entirely disappeared, the value 
imparted by the stamp alone remains. We have reached Token 
Money or Money of account. In our time it is exclusively known 
in the form of paper money — not to be confounded with bank 
notes payable or supposed to be payable in legal coin. The 
best known prototype of this class is the French Assignats of the 
eighteenth century; but money of this kind was already used in 
remote antiquity, in China, Rome and Carthage, in the shape of 
small pieces of leather supplied with certain signs; iron, whose com- 
modity value was destroyed, in Sparta, etc. 

The wooden tallies issued by the English Treasury up to the 
reign of William III. belong to the same class. They were accepted 
in payment of taxes by the Treasury, but not paid in gold or silver. 

What has more than any other cause contributed to compli- 
cate the money problem is the difficulty of drawing a sharp line 
between this third class of money and a special kind of currency, 
called bank or treasury notes. Where these are merely money 
promises, they are not money; but where they have been made 
legal tender they are legitimate money, even though, as in the case 
of the Bank of England notes, the bank has to pay coin for them 
on demand. With most kinds of legal-tender bank or treasury notes 
this obligation does not exist; for though at some time or other 
coin was obtainable for them, the practice has become obsolete, and 
to all ends and purposes they are just as much mere tokens, or 
paper money, as the French Assignats were. To this class belong 
the notes or Argentina.* Brazil, Greece, Portugal, Spain, Turkey, 

*The Argentine Republic offers an interesting example of the hybrid 
natiirc of certain kinds of paper money. In 1869 the province of Buenos 
Ayres issued real paper money, on which was printed: "La Provincia de 
Buenos Ayres reconoce este billete por i peso, moneda corriente." (The 
province of Buenos Ayres recognizes this note for i peso, current money.) 
The present paper money of the Argentine Republic has the inscription: 
"La nacion pagara al portador a la vista por medio del Banco de la nacion 
Argentina i peso." (The nation will pay to bearer at sight through the bank 
of the Argentine nation, i peso.) Which means that for the paper another 
paper of the same kind is handed over on demand. This paper is legal 
tender money, and is issued even for small change down to S centavos. 
As a peso in paper is worth about 45 cents, the 5 centavos paper is worth 
about 2 cents. These notes are not only a hybrid between paper money 
and money representatives, but also one between treasury and bank-notes. 



72 THE ECONOMIC AND SOCIAL PROBLEM. 

etc. Austria^Hungary and Russia resumed specie payments after 
a very long- period of non-convertibility ; but I do not think the pay- 
ments have been permanently resumed in Russia. In spite of the 
text of the notes promising coin, her people there had so entirely 
ceased to associate paper roubles with coin that the peasants in 
many cases refused the new coins at first, because in their eyes — 
exclusively familiar with the paper — they were not roubles.* 

Though the hybrids just enumerated are responsible for most 
of the confusion reigning in the field of currency reform, the 
elasticity of the boundary line between class i and class 2 is equally 
productive of mischief. Thus the main bone of contention be- 
tween monometallists and bimetallists is the question whether or 
not the value of gOld or silver as merchandise can be kept at par 
with their money value where both are made legal tender for all 
debts, after a permanent relation between the amounts of metal 
respectively used in the gold and silver coins has been established; 
or. in other words, whether both together can be kept within our 
first money class. It is evident that, whenever the merchandise 
value falls below the money value, the coin has, for the time, passed 
frona class i into class 2. A possible temporary excess of the mer- 
chandise value over the money value can be left out of account, be- 
cause dealers in the precious metals will at once take care to elim- 
inate such coins from the money domain altogether, by selling them 
as bullion for melting purposes. Coins selling at a premium in 
legal tender are practically no longer money, but a merchandise. 

Without wishing to prejuge at this stage which class of money 
proves the best in practice, we can at least conclude that each 
presents a degree of evolution from the preceding class, an evolu- 
tion corresponding to a more advanced state of civilization, just as 
the use of class i itself was a decided progress from primitive barter. 
It is barter still, but improved barter; or, as it. has also been called, 
a double barter. The tailor who wanted to exchange a coat for a 
table had not only to find a person who wanted a coat, but one who 
at the same time had a table to dispose of. If by custom certain 
commodities are accepted in exchange by everybody, whether spe- 
cifically required or not, because, through this general acceptance, 
other things which are required can be procured for this special 
commodity, the work of our tailor is much simplified. He has onlv 
to find someone who wants a coat and is willing to give the gen- 
erally accepted commodity for it. He is sure then to obtain a table 
in case one is in the market, even if the owner of the table does not 
want a coat; because the latter will certainly accept the special com- 
modity, for which he in his turn can obtain anything he mav need. 

*This recalls a remark made by Thompson, in his "Political Econ- 
omy," of the Scotch bank-notes down to 1845 : "The people will take guineas 
instead, if they must, but they pass them off as soon as possible, as a pre- 
tentious, unthrifty, eminently un-Scottish kind of money, much inferior to a 
native bank-note coined in any corner of Scotland." 



MONEY. 73 

The next step will perhaps be that the community makes its taxes 
and fines payable in this special generally accepted commodity; and 
finally, not only the prices of all goods and services are computed 
in the quantities of the special commodity for which they are ob- 
tainable,* but debts are made payable in our commodity, which be- 
comes legal tender, and consequently money. When it is supplied 
in exchange for anything else, or when it is handed over for a debt, 
we call the transaction a payment; bartering becomes buying and 
selling. 

It is generally considered that the adoption of certain metals 
as the money commodity, because of their comparative indestruc- 
tibility, their, homogeneousness, their divisibility and their general 
use in the arts, marked a further progress. We shall yet have to 
consider whether another of their qualities — their scarcity — usually 
given as their principal claim to the money honor is not more in the 
nature of a disqualification than of an advantage, through the dan- 
gers it involves. 

A further good qviality of metals, usually stated, is their 
impressibility. (I should prefer to use the word "coinability.") 
Metals ofifer the great advantage of delegating the trouble 
of weighing and assaying each piece to special parties, in- 
stead of forcing this work on every receiver of money. It is a 
perfection, however, which in its consequences supplies the most 
powerful weapon for the gradual but certain dethronement of the 
precious metals from their money kingship. The stamp itself ob- 
tains a value more and more independent of the raw material to 
which the stamp is applied, until, after class 2 is passed, the value 
of the raw material entirely disappears, and class 3, token money, 
is reached — a very ancient class; for the money of some high civili- 
zations of the past belonged to it, and it is capable of a perfection 
to which the other classes cannot aspire. 

The money of the first class is the remnant of a stage of de- 
velopment not far distant from the savage condition. Credit, the 
child of confidence and trust, is not bom. The money accepted 
has as much value if sold as an ordinary merchandise as the com- 
modity which is supplied for it. The money of the third class, 
however, has no other value but that imparted by the stamp, for 
the material on which the stamp has been affixed is practically 
worthless. Parting with valuable goods for a mere token of no 
independent market value presupposes a certain amount of trust in 
others, the trust that they will pay equal honor to the stamp. 

Robert Ellis Thompson says, in his "Political Economy," 
p. 152: 'Tf barter may be compared to the rude mode of transpor- 

* Jevons draws special attention to this function as a measure of value 
by pointing out that "between one hundred articles there must exist no less 
than 4,950 possible ratios of exchange ... all such trouble is avoided 
if any one commodity be chosen, and its ratio of exchange with each other 
commodity be quoted." 



74 THE ECONOMIC AND SOCIAL PROBLEM.. 

tation on human backs, and coin to transportation in carriages by 
horses, paper money is the steam carriage, whose use calls for 
larger precautions against danger, but whose superior utility far 
outweighs that consideration"; and further on, pp. 156, 157: "The 
third and the most perfect form of money is t>wncy of account. 
It possesses in a still higher degree all the advantages that make 
paper money better than coin." (Under paper money Thompson 
understands bank-notes; money promises; "money of account" is 
his expression for token money.) "As much as paper money is less 
material than coin, by so much is money of account less material 
than paper money." After comparing money of account related to 
bank notes with a flying machine as related to a steam carriage, 
he goes on: "It is the money of civilization; its use involves a 
degree of intelligent insight into the true nature of wealth and of 
exchanges; and a strong confidence in the general honesty and 
trustworthiness of mankind, that are impossible to the savage or 
half-civilized man. . . . It originated in the communities of Italy ; 
from there it came to Amsterdam, Hamburg and Stockholm." 
(Thompson here leaves out of sight the token money of ancient 
times, i.e., that of China, Carthage, Rome, Sparta, etc.) He relates 
that the republics of \'enice and Genoa authorized their creditors to 
establish banks on the basis of the certificates of the city's debt. 
After stating that the bank of Venice dated from 1171, he pro- 
ceeds: 

"Then to secure a uniform currency, the Government decreed 
that all wholesale transactions should be paid in the form of a 
transfer of bank stock — unless otherwise stipulated — so that who- 
ever had a boxful of coins gathered from the four quarters of the 
earth through the manifold channels of Venetian trade, took them 
to the bank to get credit upon its books according to their weight 
and fineness. The standard by which their value was estimated 
was called 'money of account,' to distinguish it from the various 
moneys that were translated into it. The Government treated 
these masses of coin as payment for the privilege of a credit in the 
bank's book, and all idea of their repayment was lost sight of." 

Benjamin Franklin says: "Paper money, well founded, has 
great advantages over gold and silver, being more light and con- 
venient for handling large sums, and not likely to have its volume 
reduced by demands for exportation. No method has hitherto 
been formed to establish a medium of trade equal in all its advan- 
tages to bills of credit made a general legal tender." 

David Ricardo says: "Tlie whole charge for paper money 
may be considered as seigniorage. Though it has no intrinsic 
value, yet by limiting its quantity, its value in exchange is as 
great as an equal denomination of coin or of bullion in the coin. 
It is .not necessary that paper money should be payable in specie 
to secure its value, it is only necessary that its quantity should be 
regulated." ... "A regulated paper currency is so great an im- 



MONEY. ' 75 

provement in commerce that I should greatly regret if prejudice 
should induce us to return to a system of less utility. The intro- 
duction of the precious metals for the purposes of money may with 
truth be considered as one of the most important steps towards the 
improvement of commerce and the arts of civilized life. But it is 
no less true that with the advancement of knowledge and finance 
we discover that it would be another improvement to banish them 
again from the employment to which during the less enlightened 
period they have been so advantageously applied." 

In "Munera Pulveris," p. 21, John Ruskin says: "The use of 
substances of intrinsic value as the material of a currency is a bar- 
barism, a remnant of the conditions of barter, which alone renders 
commerce possible among savages." 

In a letter to Col. Edmund Taylor, December, 1864, Abraham 
Lincoln said: "Chase thought it a hazardous thing, but we finally 
accomplished it and gave to the people of this Republic the greatest 
blessing they ever had — their own paper to pay their own debts." 

In thus considering the third class the highest evolution of 
money, I do not wish to prejudice the question whether it is also 
to be considered the best money under any circumstances ; this 
important question will be treated later on. Our first task was to 
define and classify. 

We have now to investigate what constitutes the value of 
money. If I were a German professor of political economy I should 
begin with a definition and history of Value, which, by itself, would 
compass not less than 500 pages, to contribute my share to the 
Dryasdust library on that famous subject. Fortunately my appren- 
ticeship has not been passed in a university, but in practical busi- 
ness: in banking, manufacturing and trading. Before I ever read a 
book on political economy I had a twenty-five years' practical 
survey of the field covered by this science. This enables me to get 
through with our friend "Value" in a few lines and without enter- 
ing into those tedious elaborations, to which we may well apply 
Macaulay's estimation of ante-Baconian philosophy: "Words, and 
more words, and nothing but words, had been all the fruit of all the 
toil of all the most renowned sages of sixty generations. . . . 
The taint of barrenness had spread from ethical to physical specula- 
tions." We may add, "and not only to physical speculations but to 
speculations of a still more important nature — to those of political 
economy." If anything were necessary to prove how thoroughly 
infected all domains of human thought have been with scholas- 
ticism, it may be found in the fact that two and a half centuries 
after the Novum Organum, the science which has the task as- 
signed to it of teaching humanity a fair arid jiist system of produc- 
tion and distribution prefers to waste its precious opportunities in 
barren speculations about the nature of "Value." 

I shall at once simplify my task by leaving "Value in use" 
entirely aside, for it is self-evident that an object must have value in 



76 THE ECONOMIC AND SOCIAL PROBLEM. 

use before it can have a market value or value in exchange, the 
only kind of value economic science need concern itself about. Nor 
need we trouble about certain values in use which have no market 
value because of their abundance, such as water and air under nor- 
mal conditions. Anything has a market value for which some- 
thing else is currently offered in exchange. We can call this other 
thing its price. Price alone determines value in an economic sense, 
the only kind of value we are concerned with in this treatise. We 
can safely resign the balance of the whole value-field to those 
parties who are fond of scholastic playthings, and once for all have 
done with that bugbear of students in the field of economics. 

There is only one way to find the value of money: it is to ob- 
tain the prices of goods and services. In other words, the value 
of money is its purchasing poz^'er. 

There is no other gauge; just as money measures the value 
of merchandise, so merchandise measures the value of money.* 
This holds good for money of all three classes, with the only dif- 
ference that, as the value of the money of the first class cor- 
responds to that of the merchandise it is composed of, it is imma- 
terial whether we speak of the value or price of this merchandise 
or that of the money made out of it. 

Gold is the money material adopted by the principal commer- 
cial nations which are using money of the first class; for even in 
the four bimetallistic countries: France, Italy, Switzerland, and 
Belgium the silver money no longer belongs to the first class; 
free coinage has been given up — of which more when we discuss 
bimetallism. Consequently, we may as well speak of the value of 
gold in such countries when we speak of the value of their money. 
It is immaterial whether, for instance, in England we speak of the 
value of the pound sterling, or of the value of the 123.374 grains 
troy of standard gold composing it, as anyone who carries this 
quantity of standard gold to the British mint can obtain a sovereign 
free of cost for it, a right to which we give the name of Free 
coinage. 

In the United States whoever brings 25.8 grains of standard 
gold, nine-tenths fine, to the mint can demand its free coinage into 
a gold dollar. As gold dollars are no more coined, he obtains a 
five dollar piece for five times 25.8 grains. 

This definition of the value of money is certainly simple 
enough, and seemingly beyond any possible chance of dispute ; yet 
even here, as everywhere in monetary science, confusion has crept 

* Professor Simon Newcomb says : "The fluctuations of money escape 
our notice. Our whole education leads us to look at the dollar as abso- 
lutely invariable. It is like the earth. We do not see it move. The sun and 
stars appear to move round the world, and commodities appear to move 
while gold stands still, whereas in both cases the actual fact is the reverse of 
appearances." 



MONEY. '77 

in, and we cannot proceed without devoting some space to two 
causes of error. 

One is due to the jargon of the Stock Exchange. When its 
devotees speak of dear or cheap money, they do not mean the 
only thing which these words really signify: the increased or de- 
creased purchasing power of money, but the rate of interest at 
which money can be borrowed. We often find money very cheap 
— in Stock Exchange parlance — in times of commercial depres- 
sion, because capital is shy, and prefers the 2% to 3% it can ob- 
tain on best securities to any high percentage oflered in commerce. 
On the other hand, in times when the discount of the Bank of 
England is at its lowest, often money cannot be borrowed at all, 
unless a security is offered that the average business man cannot 
supply.* The rate of interest is low, but the risk premium is ex- 
ceptionally high. This difficulty of finding money, this height of 
the risk premium, forces the business world to sell goods at any 
price; and usually such times of exceptionally low rates of interest 
are accompanied by low prices. But low prices of merchandise 
mean a high price of money, whose purchasing power has risen, 
has appreciated. Thus when the bill-broker says that money is 
cheap, it is dear. On the other side, when he finds it dear, it is 
cheap; because when industry and commerce are flourishing, when 
capital finds remunerative investment in business, it does not com- 
pete so sharply for the securer investments bearing a lower rate of, 
interest. In such times the price of consols falls, because many 
people sell them to take stock in industrial enterprises, and the 
Bank of England rate rises because the business world eagerly 
ofifers bills for discount. But when industry and commerce are in 
a flourishing condition, prices generally have a rising tendency, 
and, consequently, the purchasing power of money becomes re- 
duced. So money is cheaper at the very time when the broker 
tells us that its price has risen. 

But this is not the only source of error in this field. When 
the fall of prices during the last thirty years is discussed (this was 
Avritten in 1901 before the trusts forced up prices), you hear that 
this does not imply the appreciation of gold, of money, but that it 
means, through our technical progress, goods are produced at 
lower prices. The worthy gentlemen who reason in this way do 
not see that their argument is on a level with that which denies 
that John is taller than Charles because Charles is shorter than 
John. It is absolutely immaterial whether less gold is given for 
woolen goods because woolen goods can be produced at one- 
half the price of x years ago — the same worker being able to spin 
and weave during the same number of working hours a much 
greater quantity of wool by means of our improved machines — or 

* As Emory Storrs once said, after being frequently told that money 
was plentiful, yet whenever he tried to borrow was asked for collateral he 
did not possess, "it isn't money that's scarce, it's collateral." 



78 THE ECONOMIC AND SOCIAL PROBLEM. 

perhaps because gold has become scarcer in proportion to the de- 
mand and costs relatively more to produce. All we want to know 
is whether or not it is true that twice as many woolen goods have 
to be given for the same quantity of gold. If they have, then the 
purchasing power of gold measured in woolen goods has doubled, 
and if all other goods have fallen in price at the same rate gold 
in general has correspondingly appreciated. If, on the other side, 
the new gold mines opened within the same period had produced 
so much gold that the ofifer of gold in the market had increased 
much more rapidly than the supply of all other classes of mer- 
chandise for gold, the prices of merchandise might have risen in 
spite of reduced cost of production, and gold might have depre- 
ciated. 

The relation between the quantity of money offered for goods 
and the quantity of goods supplied for money — in other words, the 
law of supply and demand — determines not only the price of goods, 
but also, at the same time, the price or the value of money. We 
must be very careful, however, not to infer from this definition — 
usually called the quantity theory — that there is anything like a fixed 
relation between the quantities on both sides of the equation, such 
as, for instance, John Stuart Mill scons to assume, when he says 
(Book III., Chapter VIII., par. 2 of his "Principles of Political 
Economy"): "If the value of money in circulation was doubled, 
prices would be doubled. If it was only increased one-fourth, prices 
would rise one-fourth." He qualifies his dogma, however, in Chap- 
ter XIII. of the same book, when he discusses the effect of credit 
on prices. He could not fail to see that elements more powerful 
than the mere money or goods quantity come into play and make 
such a raw conception of the quantity theory impossible. 

Anyhow, Mill realized that it is not the quantity of the money 
stock we must consider, but the quantity which circulates in the 
market. Money may be plentiful, but it may be locked up in the 
safes of misers; and the poor producer who wants to sell his goods 
to obtain the money he needs may find a good deal of truth in the 
facetious German saying: "Money by itself does not confer happi- 
ness; we must possess some of it." Prices may thus be very low, 
in spite of a large stock of money. 

Then we have the rapidity of circulation which plays an im- 
portant part in the problem. Francis r>owen illustrates this influ- 
ence well when he says: "The circulation of money and merchan- 
dise bears some relation to the momentum spoken of in physical 
science, which is composed of the velocity multiplied by the mass. 
The movements are equal, though the velocity should be increased 
ten-fold, provided that the mass is but one-tenth as great. So also 
the momentum of wealth is its value multiplied by the rapidity of 
its circulation." 

( )n tlic other hand, the quantity of goods offered in the market 
by itself has no influence on the prices of goods and money, but 



MONEY. 79 

only the quantity offered for money. Where exchange transac- 
tions are mostly done by barter, a comparatively small quantity of 
money may correspond to a much larger turnover of goods than 
where business is done solely on a cash basis. And barter has 
played, and still plays, a much more important part in business 
transactions than many people are aware of. Many of the Aus- 
tralian farmers' business transactions are performed on the basis 
of mutual exchange. Prices and sums are expressed in money, 
but no money passes. In some parts of the world even barter has 
not yet been reached. Even in progressive New England the 
farmer's wife, during the first half of the nineteenth century, still 
made her own soap, candles, sugar (maple), linen, and part of the 
weolen apparel of the household. The farmer brewed his own 
beer, made his own cider, or pressed a sour wine from poor grapes. 
Rosegger, an Austrian author still living, tells us in one of his 
most humorous writings, from his own experience, how the peas- 
ants' in his native village tanned their own leather, which the shoe- 
maker, while he boarded in their houses, made into shoes in ex- 
change for produce, in the same way in which the weaver made 
cloth from the homespun wool or yarn. Often the peasant had 
his own loom. Most of the furniture was home-made, from the 
table and chair to the mattress made from home-spun and woven 
flax, and filled with hair cut from the farmer's own horses, or 
feathers from the geese of the barnyard. Similar primitive condi- 
tions still obtain in many parts of the world. 

But barter in our times is a less important substitute for money 
in business than credit, and especially one form of credit — money 
representatives. In some countries the check does most work of 
this class. A buys some goods from B, B from C, C from D, and 
so on until Z buys from A. Each gives a check; and if all transac- 
tions have been made on the same day, all these checks come into 
the bank at about the same time, and they are booked for and 
against the parties. A large turnover may thus take place without 
a penny of money having passed, even if the parties have different 
banks. For such a case the banks, among themselves, have an insti- 
tution, called a clearing house, where all bring their checks payable 
at the other banks, and these are compensated just as the checks of 
those who bank in the same establishment are compensated in its 
books. In England, the balances are paid by checks of the Bank 
of England; and thus billions are turned over without the use of 
coins to any great extent. "In a return," says M'Leod, "laid be- 
fore Parliament by an eminent city firm, it was shown that out of 
£2,000.000 payments and receipts by the firm, only £40,986 were 
paid in gold, silver, and copper, all the rest in different forms of 
credit, and some bankers found that in banking only .0025 per cent, 
were paid in coin; all the rest in credit." 

The bank clearings in the United States for the year ending 



80 THE ECONOMIC AND SOCIAL PROBLEM, 

September, 1906, were $157,749,000,000, which were settled by pay- 
ing $5,793,000,000 (3.69%) in cash. 

Next to checks: bank notes, bills of exchange, promissory 
notes, and I.O.U.'s are the principal forms which the money repre- 
sentatives usually take. It is impossible to estimate exactly their 
quantity relation to the money stock. At all events I think 
M'Leod's estimate exaggerated when he calculates the credit (rest- 
ing on no millions of actual coin in Great Britain) to amount to 
10,890 millions, or about one hundred of credit to one 
of coin. I came to the conclusion that the relation does not 
exceed 40 to i ; and if we deduct those debts which are compen- 
sated by other debts due to the debtor, the proportion will prob- 
ably not exceed 30 to i, nor be less than 20 to i. According to the 
director of the United States mint, the debts of the world payable 
in gold in the year 1893 amounted to $60,000,000,000. while the 
stock of the world's gold amounted to $3,582,605,000, which is 17 
to I ; but I think this is far below the real indebtedness at the 
present time. This lowest figure is, however, quite ominous enough, 
for it means that if all creditors press for payment in money, only 
one dollar in seventeen can be forthcoming. If we assume that 
our largest financial concerns owe on the average about six times 
more than their money stock amounts to, we are on the safe side. 
J. C. Leaver states in "Money," p. 20, that the chief London banks, 
exclusive of the Bank of England, owe to the public £227,000,000, 
and that the cash in hand and at the Bank of England amounts to 
£27,000,000 (less than one-eighth). 

George Clare, in his "Money Market Primer," which has been 
included in the list of books recommended by the Council of the 
Institute of Bankers, says: "The sum due on 31st December. 
1890. by the banks of the United Kingdom, under the head of 
Deposit and Current Accounts, was estimated by the "Economist" 
on the basis of the balance sheets published by the joint stock 
establishments at, in round numbers, 650 million pounds, while 
our whole stock of legal tender does not exceed 126 millions . . . 
and of these 126 millions it is quite likely that half to two-thirds 
are in actual circulation among the people, leaving a balance of, 
say, 50 or 60 millions available for banking purposes." 

Sir Robert Gififen in a lecture delivered in London March 26, 
1908, figured the banking liabilities of England at over 900 million 
sterling; available reserves at not over 50 million. 

A similar state of things obtains in the English colonies. The 
dififerent banks of New Zealand, including the savings banks, owed 
in 1904 for deposits about £27,000,000, to which about £1,500,000 
bank note circulation has to be added. The gold and silver avail- 
able for these debts amounted to somewhat less than £4,000,000. 
about one pound for eight due. If we deduct £9,000.000 of fixed 
deposits, for which a certain time is given within which the banks 
are supposed to be able to raise the money — a very vain hope 



MONEY. 8i 

when we consider the similar position of the English money market 
and of other countries, besides the fact that financial crises usually 
extend over the whole world — £19,500,000 were left, which the 
creditors could claim from one day to another, and of which only 
four shillings in the pound (one-fifth) could be paid. 

On June 30, 1906, 6,053 National Banks of the United States''' 
owed $4,819,974,251 for deposits, against a cash reserve in bank 
of $651,233,603, or 13.51%, a little over one-eighth. Other com- 
mercial banks owed for deposits $4,860,399,428, against a cash 
reserve of $308,808,254, or 6.35%. The Savings Banks owed 
$3,300,000,000 for deposits, against 26 millions in cash, = 4-5%. 
All three together owed in round figures 13 billion dollars, with a 
cash reserve of only one billion, or 8% = one-thirteenth. But 
this cash reserve includes greenbacks, bank notes, gold and silver 
certificates. Gold coin, bullion and gold certificates amounted to 
only 487 millions, or 3^% = one twenty-sixth of their gold debts, 
which almost exceeded threefold the whole gold stock of the world. 
At that date the money in the United States treasury as assets 
figured up to $325,400,000; that in circulation outside of the treas- 
ury and the banks at $1,728,000,000, so that the total, including the 
money of the banks, amounted to 3 billions gold, silver and paper. 
The gold alone would hardly figure up to more than one-half of 
this, so that the whole gold of the country would only pay one- 
ninth of the bank debts, leaving all other debts out of account. 

Under such conditions, the actual money stock can only have 
an indirect efifect on prices, and consequently on the value of 
money. Tooke and Newmarch, in "A History of Prices and of the 
State' of the Circulation from 1793- 1837," give some interesting 
facts proving this, showing how the state of credit is of much more 
importance than the money stock, and how periods of low prices 
at dififerent occasions coincided with a larger, and of higher prices 
with a smaller money stock. Most instructive is the course of the 
English crisis of 1847. 

Prices at the Stock Exchange fell enormously; from one day 
to another as much as i^% discount was paid; which is at the 
rate of 450% per year. General ruin was in view, when at last the 
Government promised a suspension of the Bank Act. At once the 
panic disappeared, and large treasures of sovereigns and bank 
notes came out of their hiding places. That there was no excep- 
tional demand for gold was proved by the fact that during the 
whole time of the crisis there was no diminution in the issue of 
bank notes; and what is more, as soon as the permission was given 
to the bank to issue more notes, not quite £400,000 in all were 

*A special institution of this country, organized on the plan of keeping 
your pudding and still eating it. These banks deposit in the United States 
treasury, bonds whose interest they pocket, and on the strength of these 
bonds they obtain money, almost interest free, which they leri4 out at high 
interest, thus getting double interest for their capital, 



82 THE LCOXOMIC AND SO*. lAL rROnLRM. 

demanded. This was specially nicniioiRd in the defence which the 
Chancellor of the Exchequer made in the House of Commons 
He said that the money in the hands of the public was sufficient, 
but that its circulation was lamed by a panic, as all reports received 
by him proved. The Government was asked for assistance from 
all sides, but everyone said: "We don't want any bank notes, we 
want confidence. Tell us that you will assist us, and we have 
enough. When we know that we can obtain bank notes we do 
not need them, it is indifferent how high the interest rate de- 
manded, confidence will at once return." 

Here we see clearly that it was assuredly not the gold coins 
which the people wanted, and not even the bank notes, but only 
the certainty that they could obtain them in case they wanted them. 
Bank notes, they knew, could not be converted into gold in case 
a general attempt had been made; for even in ordinary times, with- 
out any repeal of the Bank Act, the issue of 15^ million pounds 
of notes is permitted to the bank (at that tune not less than 14 
millions) without any gold cover; and the suspension of the Act 
might have largely increased the amount for which no coins and 
no bullion were in stock. The people made no attempt to de- 
mand gold for the notes. The notes were legal tender, they could 
be used to pay ofi liabilities, and that was all they wanted. 

We have thus arrived at the conclusion that the condition of 
credit determines the value of money, a credit the foundation of 
which is the certainty people possess, or believe they possess, that 
monetary engagements can be regularly kept, that the money prom- 
ised will be forthcoming when due and demanded. The actual 
money stock of the country — as a remarkable historical example 
has just shown us, and as the facts of everyday life prove — plays a 
much less important part than other causes of which the tempo- 
rary disposition of the money-creditors is the principal one. When 
I use the word "money-creditors," I do not mean merely the rich, 
powerful as their influence necessarily must be. 

The financial crisis of 1893 i" ^'^'^ country, whatever may 
have started it, became so acute through the fears of the poor sav- 
ers, who became afraid for their balances at the savings banks, 
and came in crowds to claim their own in cash. Savings banks 
cannot keep much ready money in stock, but are forced to invest 
the deposits for more or less extended terms, so that they may 
obtain the interest which their depositors claim from them. If an 
exceptional demand be made, when a tightness in the money mar- 
ket disables them from borrowing at reasonable terms enough to 
tide them over the temporary difficulty, they must of necessity 
suspend payment. The simultaneous demands made by their de- 
positors thus caused a pretty general temporary suspension of 
these banks. Other financial institutions, whose creditors pressed 
for money in the same way, followed suit, and finally the excite- 
ment of the small savers became the panic of the nation. Money 



MONEY. 83 

was as good as unobtainable, and as much as 3^% per day, or 
180% per year, was paid by solvent parties supplying the best kind 
of securities. 

This crisis of 1893 is especially instructive because there was 
no exceptional cause for the sudden alarm. No war threatened 
the country or the world; no catastrophe of nature had caused 
unexpected losses; the crops were good. The Chicago Exhibition 
brought millions into the country and into circulation ; politics indi- 
cated fair weather. It was merely the case of a sleep-walker quietly 
stepping along the border of a chasm. He has not the least fear; 
he has passed over much more hazardous places before without 
heeding them. But suddenly something or other awakens him; 
he becomes conscious of his danger; he sees it, and headlong he 
falls. The chasm between the amount of money due and the actual 
money stock may have been much wider at other times; but the 
people did not pay any attention, and went on with their daily 
routine, when some mere trifle occurred. Perhaps it was a report 
from somewhere that there was danger of suspensions — a danger 
threatening them all the time and sometimes even with much 
greater force, but a report now, spreading and swelling through 
the very effects it brings about. When this report makes them 
start and survey the position, they recognize the patent fact that 
there is absolutely no money to be got if they really should choose 
in a body to claim their dues. The simplest calculation would 
have shown this all along; but their thoughts were elsewhere, and 
thus they had not seen what now suddenly — like an apparition 
illuminated by the lightning 6i an ink-black night — gives challenge 
to their horror-smitten minds. 

But not all are sleep-walking, awakening only in panic times, 
and dearly paying for their previous blindness. Our financiers 
have their eyes open all the while, and though they do not know 
the hour of the impending catastrophe, they see the chasm and 
they know their danger. This knowledge finds its expression in 
the high risk-premium demanded, so high that the average debtor 
cannot pay it. The permanent load of usury presses with a much 
heavier weight on the people than the dangers and losses of the 
occasional crises. These are the acute outbreaks of a chronic 
disease which is sapping the life-energy all along, growing in vio- 
lence from year to year, from crisis to crisis. Take away the ter- 
rible nightmare generated by the certainty that whenever an ex- 
ceptional demand for money may occur, a crisis must ensue, and 
our wild struggle for life will have lost its intensity at once. But 
this struggle must be hopeless with a money whose quantity cor- 
responds to that of a certain precious metal, a quantity so ludic- 
rously small when compared with the demand that a credit building 
about thirty times as high as the diameter of its narrow founda- 
tion had to be erected on it to enable us to carry on at all. while 
all the time invention succeeds invention, technic progress follows 



84 THE ECONOMIC AND SOCIAL PROBLEM. 

teclinic progress and creates a continually growing demand for 
more currency. We have seen that the banks of one single coun- 
try, leaving aside all other debts, owe twenty-six times as much 
gold as they possess, and about three times as much as the whole 
gold stock of the world, coined and uncoined, figures up to. 

The danger inherent in this state of things has been realized 
not only bv financiers but by growing numbers of thinking men 
of all trades, and it is the soil on which has grown bimetallism. 

Bimetallism has been attacked on the ground that it is impos- 
sible to make two dififerent commodities — two precious metals — at 
the same time the standard of value: that if both are coined as 
legal tender money, one of them has generally to lose its money 
character, becoming a mere merchandise for the time. This seems 
plausible, for bimetallism presupposes free coinage of both metals 
at a certain unchangeable ratio. Suppose this legal ratio to be 
sixteen to one. this would mean that anybody bringing to the mint 
25.8 grains troy of "standard" gold has a right to claim for it a new 
gold dollar containing the same quantity of gold; and anybody 
loringing to the mint sixteen times the 25.8 grains of "standard" 
silver can claim one silver dollar, which is to be legal tender for all 
debt, just like the gold dollar. Rut will the market price of the 
two metals — which follows supply and demand — permit the main- 
tenance of a fixed ratio? You could certainly not buy in the mar- 
ket the above quantity of silver, say, for ninety cents, and thus 
make ten cents profit on every dollar coined, — no matter how much 
lower sixteen pounds of silver could be produced than one pound 
of gold, — as long as the mint gives a silver dollar, which is legal 
tender, for the silver. But the price of money would fall together 
with, and in the same way in which the price of silver falls; the 
price of merchandise would rise, and especially one merchandise — 
gold, provided its cost of production d'A not cheapen in the same 
proportion with that of silver. It is certain that if it costs more to 
produce one pound of gold than sixteen i^ninds (jf silver, the price 
of standard gold must rise above one dollar for 25.8 grains: and 
consequently, not only will no more gold come to the mint which 
gives only a dollar for this quantity, but the existing gold dollars 
will be withdrawn from the market and will sell as bullion. 

Grcsliaui's hra' will come into oiK-ration. according to which 
the better money is driven out of tlic market by the inferior one,* 

* Better and inferior in the sense of the market price of the material 
coined. As William A. Wliittick points out in liis "Vahie and an Invariable 
Unit of Value" (Philadelphia. 1896) : "The best money is that money that 
performs the money funet'on the best and at the least cost. The use of a 
valuable metal as a tool of exchan'^-^e is just as absurd as would be its use 
in the manufacture of spades and -^lidvels. and otiier tools of industry. An 
iri)n or steel shovel would ahva- -; drive out a 'rold shovel, just as cheap 
n-oney r'-'vc. out dear monev. For three centuries this paradox has been 
tbo apolo'jist of ,-'n r^b-^'^-H ^^^■^*■'^■<■•^ ,-{ mnne\' — ■ •^\<ie--i i'l confliet wit'' tli" uni- 
vers;:l law thai the tittesi -i;.\ ■,• >. '!T.v inf.]./ ill.; ru'.i.s ;;\vay t'; :n i.-i 



MONEY. 85 

and the country will practically have a silver currency. Tjiis is not 
a mere theory, but has been the result of bimetallism wherever 
tried. Generally either gold or silver became a merchandise, and 
was withdrawn from its circulation as money, at least as far as 
wear and tear had not too niuch reduced the weight of the coins. 
My own experience during my apprenticeship in a banking house 
proved to me the fact most unpleasantly m the beginning of the 
sixties. It was a continual calculation whether gold was at a pre- 
mium, or silver; and accordingly, gold or silver coins of different 
kinds were bought to be sold as bullion. Many a weary day had 
I to assort sack pyramids of silver five-franc pieces into four dif- 
ferent kinds. Those up to and including Louis XVIII. (till 1824) 
contain a certain amount of gold, and therefore were sold to Allard's 
refining establishment at Brussels. Those of Charles X. (1824- 
30) contain less gold, and were sent separately to the same firm, 
fetching a little less. The newest pieces after these reigns, those of 
Louis Philippe, the Republic, and Napoleon III. were sorted out to 
go off as silver bullion to Amsterdam; while those of these last 
three reigns which were too much worn to pay as bullion were 
sent to the nearest branch of the Bank of France, and we drew 
bills of exchange on Paris against them. They alone were left 
in circulation, or in the vaults of the bank; the others disappeared, 
as fast as bankers and money-dealers could get hold of them. 
Gresham's law began to produce its usual efifects; the money with 
the greatest raw material value disappeared from the money into 
the bullion market. 

There is nothing in this which reasonable bimetallists will not 
agree to, as they are fully aware that bimetallism could only suc- 
ceed if carried internationally: if all commercial nations — anyhow, 
the principal ones among them — open their mints to the free coin- 
age of gold and silver to any amount at the same ratio, both metals 
being legal tender for all debts. This would so increase the de- 
mand for silver that its price would' never fall below the relative 
money value assigned to it by the law. The use as moi>ey is para- 
mount to any other to such a degree that the market value of the 
metal is bound to conform to its money value as long as the value 
of its use in the arts does not prime the money value, which might 
finally be the case if the money value fell too low. This might happen 
to silver in case the ratio between the two metals were put farther 
apart than the late market price of silver put it, if this ratio were 
beyond 32 to i. As far as gold is concerned, the limit of the ratio 
in the opposite direction also depends on the value which gold 
would maintain for its use in the arts, independent of its money 
value. The ratio is said to have been as low as i to 6 in Japan 
in the sixteenth century, and August Boeckh's "Political Economy 

duties — that refuses to circulate — is, according to this absurdity, the best 
money. The soldier who runs away from the field of battle is, by this reason- 
ing, the bravest and best soldier." 



S6 Tlilt ECONOMIC AN'D SOCIAL I'UOr.LEM. 

of Athens," I am told, speaks of times wlien silver had a superior 
value to gold. 

Snobbism is the principal value creator in the case of gold. 
Snobs wear gold watch chains or use gold plates, not because the 
metal is better than some cheaper materials for the purpose, but 
because it is costly. If, without in the least changing its qualities, 
its value fell, we should see some more expensive material take the 
place of gold. Universal bimetallism, by depriving gold of iis 
exclusive money monopoly and thus depreciating its price, would 
at the same time also reduce its value in the arts. Instead of bring- 
ing about its withdrawal from the money market, bimetallism 
would perhaps effect the contrary; it might bring more gold to the 
mint. 

One weighty objection has been made to this by the antag- 
onists of bimetallism: cost of production. Though in the first 
place supply and demand determine the price of commodities, these 
gentlemen maintain, correctly enough, that this price cannot oscillate 
far from cost of production in the long run, which renders the 
arbitrary fixing of a relation between the two metals impossible, 
as long as we cannot do away with variations in cost. The argu- 
ment seems irrefutable, and so it would be if an important element 
in the cost of production of both metals had not been left out of 
consideration: the effect of bimetallism on the margin of produc- 
tion. Ricardo in his law of rent, which plays an important factor 
in this calculation, calls it the margin of cultivation, by which he 
means the most unfavorable conditions under which production is 
still carried on, conditions which just yield the lowest wages at 
which labor would engage in the work, and the lowest profit at 
which capital will consent to invest. At this margin the price of 
a commodity is finally determined, when production is forced 
there by the demand for it, this demand not being satisfiable under 
better conditions. The price cannot be below cost at this point 
because it is exactly on the margin where labor and capital will 
yet join in production. If the price were lower than cost at this 
point, the margin would come inward to a line where better con- 
ditions obtain, and this would be the new margin of production. 
Nor can the price be above cost at the margin, for the extra profit 
thus obtained would induce production under inferior conditions, as 
long as the usual wages and the usual profit are obtainable. In 
other words, the margin would be forced outward until again no 
extra profit is obtainable; the margin would still determine the 
price. A growth of the demand forces the margin still further out, 
which can only be done if the price increases accordingly. In case 
land (including mines) forms a prominent factor in the production 
of the commodity — which is not the case in the manufacture of 
watch-springs, pens and needles, but is the case in the mining of 
iron ore, for instance, — the extra profit made inside the margin takes 
the shape of Rent. 



MONEY. 87 

Ricardo in fact limited his law to such cases where the extra 
profit appears as rent, and, though since then extended to all pro- 
duction and consequently to all profits— especially by Professor 
Boehm-Bawerk and his disciples— we may still call it Ricardo s 
Rent law. Though usually illustrated by its effects on wheat pro- 
duction, this law is however still more applicable to the precious 
metals than to wheat, for while a larger consumption of wheat is 
soon met bv a correspondingly increased production through a 
slio-ht pushing back of the margin of cultivation, the scarcity of 
the precious metals renders this effect on the margin much more 
powerful. It is quite certain that the remonetization of_ silver 
would make manv mines pay which now lie untouched, just as 
the demonetization of this metal has stopped the working of many 
mines which before yielded a dividend. The farther the margin 
is forced back, i. e., the less fertile the least paying mine yet worked, 
the higher is the cost of production, and, according to Ricardo s 
law, the cost at the margin determines the market price. ■ 

' In other words, as long as they are money materials, with a 
fixed price, it is, within certain limits, not the cost of production 
which dictates the market price of the precious metals, but their 
market price which determines the cost of production. The re- 
monetization of silver would at once open to it the money market, 
together with gold; and its value, as money, would determine its 
market price as long as this value is not inferior to that in the 
arts. As the latter was found at a ratio to gold which bimetallists 
would probably never adopt: the ratio of 32 to i, whereas the ratio 
they propose varies between 20 to i and 15 to i, we may leave 
out of consideration this contingency of the value of silver in the 
arts ever exceeding its money value under bimetallism. Thus the 
only question will be how far down the limit of the ratio might be 
narrowed without forcing gold out of the money use. This ques- 
tion cannot be answered, for nobody can foretell what value gold 
would preserve after it ceases to be used as money. 

I think even a reduction of the ratio to that of Japan m the 
sixteenth century of 6 to i need not necessarily drive gold out of 
the money use; and as long as this does not happen, such a ratio 
would simply mean that new silver mines will be opened and gold 
mines will be closed until the least fertile silver mine produces six 
pounds of silver at the same cost at which the least fertile gold 
mine produces one pound of gold. 

The result is that under anv conditions likely to occur the 
relative cost of production for the two metals will always cor- 
respond to the ratio of value which the international monetary 
convention gives them. ,, r j • 

To be quite exact, I have, however, to add a few words m 
regard to another element entering into the cost of ipine produce 
particularly, though not quite absent in other fields of production: 
gambling. 



88 THE ECONOMIC AND SOCIAL PROBLEM. 

Del Mar ("History of llie Precious Metals") states that the 450 
million dollars of ,Q;old ])roduced in California, from 1848 to 1856 
inclusive, cost in labor alone some 2,250 millions, or five times its 
mint value: but this is not the cost I mean. His cost price in- 
cludes the element of speculation, of gambling, which makes lot- 
teries such paying enter])rises, because the dazzling eflfect of great 
prices entirely blinds the gambler to the well-known fact that, 
on the ai'cragc, a lottery ticket only brings back a part of the 
price paid for it. This element of gambling may be responsible 
for the fact that certain gold and silver mines are worked, though 
they swallow every penny expended, in the hope of finally striking 
the long-expected lode; but still there remains a margin beyond 
which speculation refrains, and this is the margin which is nar- 
rowed by the depreciation and forced out by the appreciation of 
the metal. Speculation may have the effect of forcing the margin 
bevond its economic limit, but this artificial level must finally 
follow the same laws as the economic one. 

Whether and how far bimetallism would narrow the margin 
of production in gold mines, thus cheapening the cost of gold by 
destroying the rent of now rent-yielding mines, depends on the 
question whether the large increase of legal tender money would 
have a price-depressing effect on money or not. It may seem pre- 
posterous merely to express a doubt as to the absolute certainty 
of a general depreciation of money under bimetallism; but I have 
already shown that we must not accept the quantity theory in the 
literal sense given to it by some tyros. No matter what kind of 
money the twentieth century may have, business will continue to 
be done by means of the money representative, the money promise; 
but this assuredly does not signify that the amount of the stock 
behind the promises is of no importance whatever. The admis- 
sion of silver would certainly increase this stock; but whether this 
increase would be sufficient is more than doubtful as I shall pres- 
ently show. Taking the price of silver as it stood before its de- 
monetization began, the actual yearly production of both metals 
for some time to come will hardly much exceed 750 million dol- 
lars. From this we should have to deduct a very considerable part, 
at least one-half, for abrasion, loss, and use in the arts; but I re- 
frain, because we have to add, on the other side, the increase of 
the silver yield through the opening of new mines, which would 
be rendered possible l)y the rise in price following its remonetiza- 
tion. The present world stock of gold is figured at 5,000 million 
dollars; that of silver is unknown, as we cannot even guess at the 
amounts hidden and circulating in the Kast. Let us add another 
5,000 milHon, and thus bring the total of our stock of precious 
metals to 10,000 millions. The yearly increase would, therefore, 
be one-thirteenth of the existing stock. To reach the amount of 
money promises so as to make our money representatives repre- 
sent a reality instead of a dangerous fiction, our stock of 5,000 



MONEY. 89 

million dollars gold, which forms the basis of a credit building of. 
say, thirty times its basis, would have to be increased to 150,000 
millions of the new bmietallistic money. Consequently it would 
take, at the present rate of production, almost two centuries be- 
fore the 150.000 millions were reached. But this calculation pre- 
supposes two conditions: (i) Our gold and silver production must 
never fall below the present figures; and, what is much more im- 
portant, (2) Our turnover must not increase. 

Now, whoever has realized the enormous increase of trade 
within the past century, in spite of the fettering effect which our 
social conditions have exercised, with our currency system as one 
principal hindrance, will agree with me when I prognosticate such 
an immense increase for the next couple of centuries that, before 
the 200 years are passed, money representatives would have got 
farther ahead of the actual money stock than in our time, though 
the stock of the money metal had increased thirtv fold;, so that the 
basis of this circulation would certainly not be as broad as the one 
we now possess, one to twenty, or thirty, perhaps forty. A child 
can see that our productivity in thousands of commodities of all 
kinds must alwavs far outnm our productivitv in two special com- 
modities in spite of our artificially interfering with general pro- 
duction by forcing it into dependence of that special production 
of two precious metals. The relation of all production to the 
production of gold and silver is now about 400 to i ; but as only one 
half of the production of the precious metals is used for money 
purposes, the relation to be considered is 800 to i. 

Independent of this, however, the mere cheapening of gen- 
eral merchandise production through further technic progress 
would, as in the past, cause an appreciation of money, because the 
progress in the production of the precious metals does not keep 
step with it. 

For the time being, the remonetization of 'silver would be 
beneficial for all that. The mere temporary widening of the insecure 
foundation on which our whole financial circulation rests, would 
greatly revive confidence, and would largely increase credit, trade 
and, consequently, production; until soon the money promises 
would as much outrun the money stock in both metals as they 
are now exceeding the gold stock. For a time prices might rise, 
and thus debtors would be eased in a double manner. The depre- 
ciation of the money would reduce their debt, and the greater 
demand for products of labor would give them a chance of satis- 
fying their creditors. 

But this help would only be a temporary one, and would be 
obtained at a ridiculous sacrifice. Millions more of workers would 
be employed in digging ores from the ground, extracting, trans- 
porting, and perhaps also coining the precious metals; as well as 
in feeding, clothing, housing the metal producers; making the 
water-pipes, machines and tools or means of transportation, etc., 



QO TIIF. IXONOxMIC AXD SOCIAL. PRORLF.M. 

thev require. And what would be the real practical outcome of all 
this labor? Simply takings the money material out of one set of 
earth-holes to put it into another, where most of it will practicallv 
be as undisturbed as at the tune before the miners went down to 
get It, that it might be shifted from the vaults of Nature to the 
vaults of the banks. There the greatest part of the silver and gold 
might lie till Doomsday, without serving any other purpose than 
to form the basis of the credit paper circulation which will always 
be the real tool of exchange and payment. 

I forgot another result- the creation of a large number of new 
millionaires and the further enriching of others, the owners of the 
gold and especially the owners of the silver mines. How far the 
latter form the officers of the bimetallistic army of which the debtor 
class are the soldiers may be left uninvestigated. This is the plight 
we have come to at the dawning of the twentieth century h\ drag- 
ging into i.t that old fetish of a past civilization: the comniodit\ 
money. 

F'rince Bismarck once told a story in the German Reichstag 
of a ferocious watch-dog kept on a chain for a dozen years because 
he might otherwise have proved dangerous. For twelve long 
years the animal ran iorwartl and backward in front of its kennel, 
as far as the chain would permit, until a deep rut had been worn 
into the ground in the form of a semi-circle. Meanwhile, the dog's 
teeth gradually decayed, danger faded away, and libertv was at last 
granted to him. The chain was taken off. and the dog released 
The poor creature might have gone where it listed, but habit liad 
so accustomed it to its old groove at the chain's length that it con- 
tinued in this groove until it died A stupid dog! Certainly; but 
are we less stupid in continumg in the old groove of commoditv 
money, the old relic of primitive barter, when the greater part of 
our business is actually done by means of money promises; widely 
outrunning the world's money stock, and are thus practically mere 
tokens only. Like the dog, we do not make use of our libertv lo 
run free from the old chain from which in reality we have long 
since been released — the old chain of distrust and ignorance. Why 
continue making believe we trade by means of gold and silver, a 
belief sadly destroyed to our great cost whenever we want to put 
tit to practical test. As the currency of our world is in realitv 
money of our third class — token money to the extent of at lea<f 
nineteen-twentieths — why preserve the virtually worthless one- 
twentieth which exposes us to such terrible dangers, when prac- 
tically the (|uestion in nineteen cases out of tvyenty lies not between 
gold anl paper money, but between no gold money and paper 
money? Because we must have some standard and measure of 
Z'altie, is the reply we mostly obtain even from comparatively un- 
prejudiced men. A nice standard of value indeed, which is con- 
tinually varying! The very c|ualitv of the precious metals, wliich 
their defenders always fall back upon, makes them a bad standard 



MONEY. 91 

of value. I mean their intrinsic value, as it is falsely called. Falsely, 
for there is no such thing as an intrinsic value. Value — in the 
sense of market value, here meant — is a relation, the mere result 
of supply and demand. Where was the intrinsic value of the bag 
of gold found by the dying Arab in the desert? Gladly he would 
have given it for a drink of water; but the water was not forth- 
coming, and consequently the gold was valueless. No supply of 
water, no demand for gold in the water market then and there! 
It is true gold has a market value in most times and places, and 
water has not; but it is not true that this gives us a right to call 
value intrinsic in one case, and refuse to call it intrinsic in the 
other; nor does the value of gold remain more stable than that of 
most other commodities. 

The friends of gold money point to the large stock which 
serves as a huge reservoir to eliminate the efifect of a varving 
supply, but the very effect of this large stock disqualifies gold as 
a standard of value. As value is a relation, the most serviceable 
standard must be the one which most closely keeps unchanged its 
relation to the objects it has to measure. It is true that an un- 
changeable yard-stick is a better standard of length than a change- 
able one, but it is true only under existing conditions. In a world, 
however, in which everything without exception gradually grows, 
or in which everything decreases in size in the same proportion, 
though an unchangeable yard-stick might have the advantage of 
showing the general rate of growth or of diminution of things, 
and thus form a scientific instrument of great value for philosophers 
and historians who are interested in such phenomena, still, such a 
yard-stick would not be as practical and advantageous for the pur- 
poses of everyday life as one which changed in size at the same 
rate with everything else. To the merchant who purchased cloth 
by the unchangeable yard-stick before the cloth increased in length, 
and who sells the cloth by measure at the old price, the increase 
would yield an extraordinary profit, and his customers would be 
losers at the same rate. If, on the other hand, everything in the 
world — except the yard-stick — became shorter, the merchant would 
lose, if under a contract to supply goods at the old prices without 
any regard to the change of length. Which is exactly what hap- 
pened in regard to most goods sold by the gold yard-stick, whose 
admirers boast that it has remained unchanged while other things 
have varied. The man who, for the last forty years, has been 
under a contract to supply a regular quantity of wheat yearly — 
say, as rent for land — has this land much cheaper than his neigh- 
bor who pays a money rent, for the same amount of money will 
now buy more wheat, and the same quantity of wheat will fetch 
less money in the market than it did forty years ago. We have 
always to keep in mind that the price of goods measures the price 
of money as much as the price of money measures that of goods. 
Alore goods have to be sold to pay now a money debt of forty 



gi THE FXONOMIC AND SOCIAL PROBLEM. 

years' standing than were obtainal^le for the money when it was 
"borrowed. And a money of this class is called a perfect standard 
of value! Just as a vard-stick, which increases or decreases in 
length in the same proportion with all other thijigs in this world, 
would be a much better measuring instrument of length than an 
unchangeable one. so a money which changes its value in exact 
proportion with that of all kinds of merchandise would be a much 
better measuring instrument of value, to all intents and purposes, 
than one the value of which remained unchanged. As value, in 
its economic sense, is a mere relation, the standard which changes 
as the things it measures change, and thus keeps up the same 
relation to them, is more perfect than the standard which has re- 
mained fixed, and has thus varied in the only direction in which its 
stabilitv is of practical importance: in its relation to the things it 
measures. 

Thus the defenders of silver are perfectly correct when they 
maintain that silver has for the last four decades been a more 
perfect standard of value than gold, because its price fell and rose 
with that of other merchandise. But we have not the least guarantee 
that this relation will keep up for the next four decades. Processes 
of manufacture may be found which reduce the average cost of all 
kinds of merchandise one-half, while silver may become scarcer and 
rise in value instead of falling at the same rate as other commodities. 
In this case our children would be in the same predicament with 
silver debts incurred in our time as we were in regard to gold debts 
made in 1870 and due in 1900. After what I have said al)oui 
the relation of the money quantity to the turnover, according to 
which it is not likely that even the greatest increase in silver-mining 
which we could expect would be likely to keep up with the growth 
of our turnover in all merchandise and our money demand, it may 
be realized that such a change in the relation of the silver puce to 
the price of merchandise would almost inevitably occur. 

Nor will it help us to look round for other classes of mer- 
chandise to serve as the money commodity, for we have no certainty 
that their price relation to other commodities will not var\- con- 
siderably in the course of time. Wheat has been proposed, for in- 
stance, but its price variations are even greater than those of the 
precious metals. 

The clumsiness of wheat as money, independent of the cost of 
storage, would not be so great a drawback as we might think at first. 
That a bushel of wheat is not as handy a means of exchange as a 
dollar is undoubted; but that a paper note promising a bushel of 
wheat is as easily pocketed as a paper note promising a dollar is 
equallv true, and most of our business is done by means of paper 
representatives. Kven the smallest payments might be thus made. 
An Argentine five cents bank-note is worth a trifle more than two 
cents, and our postage stamps are also passing as money among the 
people. Tlie wheat would remain in the storehouses as most of the 



MONEY, 93 

gold and silver is doing, only to be handled over in the exceptional 
cases in which the holders of the wheat-warrants, the new bank- 
notes, would want the real money. 

The want of scarcity, the other indictment made out against 
wheat-money by its opponents, is an indictment the very preferrmg 
of which exhibits the degree to which the financiers have prejudiced 
ipublic opinion. They stand up for scarcity as if it were a good 
quality of money, whereas it makes a dangerous weapon in the 
hands of the money-owners. The scarcer the money material, the 
stronger the monopoly which the possession of money confers, the 
tighter the corner into which^the money creditors can squeeze the 
money debtors, the higher the usury they can exact from them. In 
fact, here we have the unavowed main reason why the financiers 
have used their powerful influence to force through the demonetiza- 
tion of silver, and thus to increase the scarcity of the money material. 
That England, the world's creditor, has always been the stronghold 
of monometallism, is not fortuitous. Through the demonetization 
of silver the debt due to its capitalists has been increased m pur-, 
chasing power bv untold millions, and the tribute chain they have 
laid on the balance of the world has been made proportionately 
heavier. 

Cattle and wheat money are certainly clumsy currencies, but 
they have one immense superiority over gold and silver money: 
everybody can produce wheat or raise cattle bv his labor, provided 
he can gain access to land, the condition without which existence is 
impossible. Few can gain access to paying silver or gold mines, 
and to obtain their product somebody has to be found who is ready 
to sell it for other goods. The more the productive power of labor 
increased, and consequently the easier it was for the money owner 
to procure other goods, the more difficult it became for the producer 
to exchange his product against the scarce gold or silver money. 
The owner of this money has his choice among the products of the 
land. All are at his disposal; the producers are at his feet, anxious 
to sell their goods for the scarce money which they not only need 
to buy necessaries of life with — barter might do that to a certain 
extent — but mainly to pay money debts, which are growing all the 
time, through the usurer's interest charges, in consequence of the 
very difificulty of obtaining the money.* With a money consisting 
of ordinary products of labor the usurer's chain could never have 
been forged; for while on the one hand the debtor could produce 
the money by means of his labor, not depending on the goodwill of 
a customer who owns the scarce metal, on the other the treasuring 

* Tolstoy in "Money" gives an interesting proof of this from tlTe history 
of the Fiji islands, whose financial ruin was accomplished by a money fine 
imposed by an American man of war. They might gradually have paid the 
fine if it had been levied in their produce, but gold was not found on the 
island and to procure it they had to run into debt at a high interest rate 
anil upun uilicr onerous terms which ended their independence. 



94 THE ECONOMIC AXD SOCIAL PROBLEM. 

of the new money ihrough ils peri>hal)ilil.3- necessitates so much 
labor that the money owner perforce becomes more tlependent on the 
worker than the worker on him. 

We are only too apt to forget that money is not merely a meas- 
ure of value and means of exchange, but is also demanded in pay- 
ment of debts. Whatever advantages the precious metals ma>- offer 
in the two tirst-mentioned qualities are greatly outweighed by the 
terrible danger their use as money implies in consequence of their 
having been made exclusive Ici^al-tcndcr for debts. We have seen 
that the amount of debts in gold currency countries exceeds at least 
twenty-fold the value of the gold they possess, which gold is practi- 
cally the only legal tender for these debts. 

The power of extorting interest for the loan of the scarce money 
enables the money owners to double their demands within fourteen 
years at 5%, a percentage rather lielow the average rate of gross 
interest ( interest proper, plus risk premium ) , which the debt(jr pays. 
Experience has confirmed what arithmeticians could foretell in such 
a case — that the chain of usury weighing upon the producers gets 
heavier from year to year, while the victim's power of self -ransom 
grows weaker and weaker. 

Thus the monopolists of the scarce money have it in their 
power to fix their own prices at which they will accept labor's 
product, or even to decide whether they will be gracious enough to 
accept it at all. Most of us are the slaves of the money power, with 
the titular dignity of free workers. In the case of skilled labor the 
title may be even more sonorous, though the facts are unaltered. 
The poor professor at a German university, to whom the State gives 
the title "Hofrath" to make up for a not forthcoming increase of 
salary, is just as really a slave of the money power — underpaid and 
bowed down by the cares of keeping soul and body together, of 
educating his children and preserving appearances — as a simple 
laborer. 

Need we wonder that, under such conditions, the wealth pur- 
chasing power of gold increases ? 

A nice standard of value, indeed ! A standard changed at the 
will of the creditor class, who, independent of the regular and certain 
increase of their claims, which the widening gulf between the de- 
mands of compound-interest and the gold-earning power of labor 
creates, can at any time force on a financial ]>anic that will put the 
produce of the workers and the workers themselves at their mercv. 
It is just as valuable a standard as a yard-stick which a merchant 
can lengthen at his own will when he goes round to make his pur- 
cliases of dry goods. 

If it were not for the power of that wonder-working giant. 
Habit, the fact — that with a full knowledge of all these conditions, we 
are still religiously conserving the gold standard — would be incon- 
ceivable. Only habit — which veils our eyes so that we see. without 
heeding, the wonders of Nature all aroun4 us ; the development of 



^ ' MONEY. ;-g5 

the tiny acorn into the mighty oak, the metamorphosis of the humble 
caterpillar into the brilliant butterfly, our own birth and bemg — 
only habit makes us support the worst monstrosities without think- 
ing about them. And even where we think, it is generally in the 
direction of justifying or sanctifying that which is, merely because 
it is. As an amusing proof of this truism, I cannot abstain from quot- 
ing a few passages out of "Money and Its Laws," by Henry V. Poor. 
"They (the precious metals) are the foundation upon which 
rests the superstructure of civilized society. Without them there 
could have been no exchanges, no wealth, no government, no in- 
stitutions, no history; nothing but the eternal iteration of savage or 
barbarous existence. . . . Without them utter chaos would at 
once take the place of the order which now conducts to prosperous 
ends the industry of every laborer. ... As without. such stand- 
ards there could be neither industry, wealth, nor civilization, the in- 
ference is irresistible that the universal demand for the precious 
metals at their cost, and the uniformity of their supply, are, equally 
with moral laws, 'part of God's providence with man.' " 

Then, speaking of the possibility of leaving money for the en- 
dowment of scientific institutions, and pointing out that this could 
not be effected by "dedicating thereto great store of food or cloth- 
ing," which are speedily perishable, he says that, "in this way, 
through silver and gold, man can invest himself, as it were, with 
the attributes of immortality. . . . No commercial people ever 
have adopted, nor will they ever voluntarily adopt, standards of value 
other than those providentially appointed." 

This man evidently believed in a bimetallistic providence, and if 
ever he became a monometallist, he would have to change not only 
his currency theories, but also his theology and religion. 

H. D. Macleod once made the striking comparison of modern 
circulation to the movements of a top which spins round on a very 
fine metallic point. As our civilization rests upon such a circulation, 
it is no wonder it is in continual danger of toppling over, and that it 
keeps going only by continual whipping! Under such conditions 
we need no longer be surprised at Mr. Poor's giddiness. Not every- 
body can stand the continual turning of a top on which he is forced 
to dwell. 

My quotation from this amusing book reminds me that I have 
said almost nothing about the function of money as a store of 
wealth. 

The fact is, I could not well imagine that anybody in our 
times should be so hare-brained as to recur to such an obsolete con- 
ception, unless the reading of "A Thousand and one Nights," with 
its treasure-troves and its AH Baba caves, or of Dumas' "Monte 
Cristo" has turned his head. Our modern Monte Cristos, our 
Rockefellers, Rothschilds, Vanderbilts, Carnegies, etc., own very 
little gold and silver; the security of their wealth rests on something 
much more solid — on human stupidity, which makes something 



96 THE ECONOMIC AND SOCIAL PROBLEM. 

exclusive legal tender which does not exist in nineteen cases out of 
twenty, and so gives to the creditor class the power of clanning 
enormous tributes for its loan; on still greater human stupidity, 
which permits the few to own part of God's earth given to all, and to 
claim tribute from those who want to use it. 

The wealth of our present world, including the land values, 
exceeds 500 billion dollars, while the total value of its precious 
metal stock does not reach 10 billions; in fact, would not reach 5 
billions if these metals were demonetized. Of every $50 of wealth 
about $1 now is, of every $100 of wealth $1 would then be. based on 
the possession of gold and silver. What pitiably insignificant stores 
of wealth! 

An American lady wrote a tale, describing the discovery of 
immense deposits of gold. The State, their owner, distributes the 
metal among the people at the rate of $10 of gold per day per in- 
habitant. The result is a general catastrophe, because not oiie of 
these "rich" people wants to work any longer, and all would have 
had to starve if the gold had not finally been confiscated and de- 
stroyed. 

Let us contrast with this starving Golconda our America as it 
would be if there were not a particle of gold or silver in the world, 
either above or below the ground, if this country had only its present 
thriftv population, its soil, climate, and minerals of different kinds, 
exclusive of the precious metals. Does anyone imagine that pro- 
duction and distribution would stop, that less wealth would be pro- 
duced? On the contrary, it will be quite clear to all who have learnt 
to understand the real function which the precious metals and the 
money made out of them are playing in our economic system, that, 
once freed from their pernicious efifect on distribution, and conse- 
quently on production of wealth, our country would soon be much 
richer in everything required by human beings, and that our civiliza- 
tion would rise to higher levels, in spite of our Poor friend and his 
co-religionanes. 

Another standard of value — labor time — has often been pro- 
posed, and tried, for instance, in Owen's "Labor Exchanges" (see 
Chapter VTT ) — a very poor standard, as the failure of all such ex- 
periments proved. A good standard only with men like that peasant 
who had his tooth extracted by a celebrated dentist, and who pro- 
tested when he was asked to pay two dollars for the operation: 
"Two dollars! Why, man, our barber at home only charges me a 
quarter, though he pulls me about the room for a couple of hours, 
and vou want two dollars for two seconds!" 

Until the period arrives when commmunist Utopias becom.e a 
reality, until the hour spent by an Andrea del Sarto at his canvas 
or by a Newton at his desk shall be estimated as valuable and 
worth the same pav as that spent bv a washerwoman at her tub 
or a crossing-sweeper with his broom, labor time — as a measure of 
value — must be relegated to the domain of those day-dreams which 



MONEY, 



97 



give a zest to the poet's compositions, but which are better left out 
of economic dissertations. As long as labor is paid according to its 
current value — found as the result of supply, and demand, the 
higgling of the market; as long as its price does not correspond 
to mere time units, so long will the labor-time standard remain a 
mere theory — and a false one at that — without any practical applica- 
tion, in spite of the most learned disquisitions of a Karl Marx and 
his disciples. 

The device of counting skilled labor in multiples of ordinary 
labor does not advance us in the least, so long as we have no gauge 
for the magnitude of the multiplier. 

Proudhon expressed it in these words: "The value of labor is a 
figurative expression, an anticipation of effect from cause. . . . 
It is a fiction by the same title as the productivity of capital. Labor 
produces, capital has value; and when, by a sort of ellipsis, we say 
the value of labor, we make an 'enjambement,' which is not at all 
contrary to the rules of language, but which theorists ought to 
guard against mistaking for a reality. Labor, like liberty, love, am- 
bition, genius, is a thing vague and indeterminate in its nature, but 
qualitatively determined by its object; that is, it becomes a reality 
through its product. When, therefore, we say: This man's labor 
is worth five francs per day, it is as if we should say: The daily 
product of this man is worth five francs." 

It seems unnecessary to insist upon the fact that nothing can . 
be a standard of value without being obtainable in the market. It 
is a truism; for how can we gauge a standard of value except by 
the result of supply and demand, higgling in the market; and how 
can this result be obtained unless there is a real supply? To find 
out the value, the standard of money, it must be offered in the 
market like any merchandise, and only its regular and permanent 
supply can enable us to effect a continual verification of its price- 
relations to other merchandise. If I at all insist on this self-evident 
truth, it is because I have met with the assertion that gold might 
be preserved as a standard of value for paper money, even though 
the paper were not convertible into gold, a single gold piece being 
sufficient to preserve the standard. The persons who maintain such 
nonsense cannot see that the value of this gold piece is its purchas- 
ing power for goods, which can be estimated in no other way but 
by a m.arket operation, and this single market operation may take 
our gold piece out of the market for ever. Where is now the stand- 
ard for all other market operations? It is self-evident that these 
market operations must be continuous, as the purchasing power 
of gold in general can be found only by its regular supply for other 
goods offered in exchange. In other words, except under the 
compulsion of the socialist State, neither the value of gold 
nor that of any other commodity can be found in anv other 
way but by the higgling of the market, which higgling implies the 
offer of the real article in quantities more or less corresponding 



^S THE ECONOMIC AND SOCIAL PROBLEM. 

to the demand; nothing can be a standard of value without being 
permanently in the market. 

\'agaries of this kind arise mainly from an abuse of imagery, 
whose office is to illustrate, but not to prove. Measuring lengths 
and weights is an entirely different process from measuring values, 
though the poverty of our language forces us to the metaphorical 
use of the same term. We measure a length and a weight by findmg 
out how many times the length or weight of a measuring tool of a 
certain length or weight is contained in the length or weight of 
the object whose length or weight we want to ascertain. We meas- 
ure the price or value of a certain class of merchandise by finding 
out how many coins of a certain price or value the market is ready 
to ofifer for it, which is attained by a number of business operations 
in which the objects whose value we want to ascertain are ex- 
changed for the measuring objects. It is a never ceasing, continually 
varying operation, ab.5(plutely depending on the mutual supply and 
demand of merchandtse and money. If all the yard sticks in the 
market are burned, except one, this one stick can serve as well to 
ascertain the lengths of the cloth to be sold, and not a single yard of 
this cloth will be under- or over-measured in consequence. It is 
totally different, however, if the value measuring tool runs short. 
In the crisis of 1857 most staples in England fell 2"]% on the aver- 
age within two weeks. Was it that cost of production had suddenh 
fallen? Certainly not; it was simply because the quantity of the legal 
tender money obtainable for these goods had suddenly decreased. 
Whenever it is shown that the supply of yardsticks or pound 
weights influences the length and weight of merchandise in the same 
way in which the supply and demand of coins influences the price ot 
merchandise, the metaphor will have become a reality instead of a 
misleading illustration. 

Criticizing standards of value can be productive of little good 
unless something better than the existing ones is proposed; for even 
an inferior standard is better than none at all. Yxoxw the negative 
part of my work I therefore now proceed to the positive. From the 
pulling down business, I come to the constructive department. 

The money of the first class has been found wanting. The 
money of the second class is only money of the third class burdened 
with an unnecessarily expensive raw material. Instead of putting the 
money stamp on cheap paper it is affixed to expensive silver, cop- 
per, nickel, or whatever material coins are made of. Much labor is 
wasted; and for all that, forgery is easier than in the case of paper 
money, the raw material of which can be prepared in a sjx^cial way 
with water marks, and other distinctions, which are imitable by 
paper makers only, and their trade cannot so easily be followed in 
secret as that of the coiner. 

J. Shield Nicholson, in "A Treatise on Money," says (p. 220): 
"As to forgery, it is a curious fact that in Scotland spurious sov- 
ereigns are niri'-e frequently met with than forged £1 notes; and the 



MONEY. 99 

art of engraving notes has made much progress since England had 
£i notes in circulation (1826)." 

Del Mar, in his "Science of Money," says: "The silk-threaded 
distinctive fibre-paper, the water-marks, the printing in colors, the 
highly artistic vignettes, the geometrical lathe work, the numbers, 
the signatures, and other mechanical safeguards of the modern 
paper-note render it far more difficult to imitate than coin." 

We shall now pass on to class 3: Token Money. Many econo- 
mists fail to see that this money is of an absolutely different nature 
from the money of the first class, from commodity money. For in- 
stance. Dr. C. F. Taylor, when he says that the present idea of 
money "is like writing a deed to a house on a plate of gold of equal 
value with the house. It is an enormous waste. Money is a title to 
wealth, and money made of gold and silver is just like the titles to 
property written on gold and silver." In this he absolutely miscon- 
ceives the nature of our gold money, for this money is no title to 
wealth, but a marketable commodity which is bartered for other 
commodities. It is true that certain pecuHarities, especially the 
stamp, and our legal tender laws have made it the most marketable 
of alf commodities, but for all that its value is that of the commodity 
it is composed of: no more nor less. Mr. Taylor's argument applies 
to monev of the second class, which practically is token money 
printed on an expensive raw material, a material in some cases al- 
most as valuabl-e as the merchandise bought with the money. This 
certainly is unmitigated folly. Either we live under a reign of trust 
and confidence, oforder and good faith-^-in this case token money, 
printed on a valueless material and issued under certain precautions, 
yet to be discussed, is the best money in the world. Or we are an- 
archistic barbarians, distrusting ourselves and our government — in 
this case no money is good enough which is not a merchandise suf- 
ficiently valuable, without its form and stamp, to purchase as much 
in the market as we gave for it, and only money of the first class 
will do this. Money of the second class ought never to be produced 
at all, except in small coins found more convenient than paper 
counters of the same value, so that the greater convenience war- 
rants the extra cost. 

The objection, often made against token money, belongs to 
the intrinsic value domain which I have already exhibited at its 
real worth. But even on the principle that value is a relation, it 
seems impossible to compare a thing which has no market value 
at all with real wealth, w'ith merchandise of any kind. At least, such 
is the objection made by men like Professor Karl Knies (Heidel- 
berg), who has written valuable books on money and credit. Ac- 
cording to him, money must be a merchandise, because you can as 
little measure the value of a commodity by anything else but the 
value of another commodity as you can measure a length without 
something that has a length. 

We might agree with the learned gentleman without, in con- 



loo i:;e economic and social problem. 

sequence, being compelled to exclude inconvertible paper mone\' 
from the money category. What is the autograph of a celebrated 
man? What is a postage stamp even when cancelled by the post 
ofifice? Are they conmiodities or not? Both sell as merchandise in 
the market, and Professor Knies cannot take their merchandise 
quality from them. He will also have to agree with me that their 
m.erchandise or market value in no way depends on the amount of 
labor they embody.* 

To a certain extent their value depends on their scarcity, for 
an autograj)!! which can be had by the million or a common can- 
celled postage stamp which can be had anywhere for the asking, 
are practically worthless, even if the former is in the handwriting 
of the most celebrated man, or if the other has the most beautiful 
picture impressed on it. But scarcity alone does not give value to 
an autograph; for the signature of a boor who wrote his name once 
in his life does not gain any value therebv. The only real element 
of value in an economic sense in these, as in all cases, is supplied 
by the market, by supply and demand. 

It is the price which the market is ready to pay. This makes a 
picture of Raphael valuable in our markets, while among the 
negroes of Central Africa it might not fetch as much as its canvas 
without the painting on it. This gives value to the autograph, to 
certain cancelled postage stamps, and to the piece of paper money 
There is no difTerence in kind from an economic point of view be- 
tween the mercantile value of Raphael's Sistine Madonna, an auto- 
graph, a cancelled or uncancelled postage stamp, and an incon- 
vertible bank or treasury note. Their mercantile value is what they 
will fetch in the market. Tlie motives of the buyers have as little 
to do with the matter as m any other case A race-horse which has 
just won the Derby will equallv be a merchandise whether bought 
with the intention of making sausages from it or of winning races 
through its help. Nor will the merchandise character of a piece of 
paper be changed in the least, whether it is bought because a 
great artist painted something on its surface, because a great man 
appended his signature to some words written on it. or because t^e 
Government printed a certain text and applied a certain stamp. 
Neither does it make any difTerence whether the picture is bought 
for its artistic value or for its scarcity, for the purpose of adorning 
a drawnng-room or of completive a collection. The economic classi- 
fication of a postage stamp or bank-note does not change in the 
least, whether they are bought for a collector's album, or if the one 
is used to prepay a letter and the other to purchase goods. The fact 
that a certain piece of paper printed with certain signs is accepted 

♦Professor Senior says very correctly: "Anv cause of limiting supply is 
just as effective a cause of value in an article as the necessity for labor for 
its production. The cost of producing money is only important as affecting 
the supply. Limit the supply, and it does not matter whether ther? be any 
cost of productifin or not." 



MONEY. lOI 

Ss money at a certain price in the market does not change its com- 
modity character; and in ?o far, we might as well have refrained 
from dividing money into three classes. In thus dividing it, we do 
not pretend that the money of our third class is not as much a 
commodity as our money of the first class; but merely that, wdiereas 
m.oney of the first class maintains its market value after it ceases to 
be used as money — a new gold eagle being worth ten dollars, even 
if sold as bullion — the money of the third class loses its market 
value after losing its money quality. Even this is only true within 
certain limits; for if gold coins cease to be money after gold has 
been demonetized, their value as bullion will no doubt decrease 
thereby; and paper money, though demonetized, may still conserve 
a value for collectors or amateurs of certain classes of wall-paper. 

In this way, I maintain that token money is money even ac- 
cording to the German professor's limitation. But if, according to 
a common saying, the best proof of the pudding is in the eating, 
the best proof of the money quality of inconvertible paper notes 
must be that they actually pass as money in many countries of the 
earth. Facts, however, have no power over academicians. They 
often act like the physician who had declared a patient incurable, 
and who, when the man had the impudence to recover, in spite of 
the doctorial dictum, quietly told him: "Scientifically you are dead, 
sir!" Or our learned professor may imitate one of his colleagues, 
who, when shown that facts did not. agree with his theory, replied: 
''So' much the worse for the facts!" 

It is, however, insufficient to prove that paper money exists 
scientifically as well as practically; we have to show that it is a 
better money than our metal money, or any money of our first and 
second classes. The general opinion is that paper money has been 
a failure. Gold has fluctuated considerably, but it never has shown 
such variations of value as most of the paper moneys we are ac- 
quainted with. As a warning example, three different historic cases 
are usually produced: Law's bank paper, the French Assignats, and 
the notes of the American confederacy. From parity with gold to no 
value at all, are fluctuations which no commodity money ever ex- 
perienced; and it is not to be wondered at that, with all their draw- 
backs, our gold and silver currencies, are generally considered as 
superior to paper currency. The ground thus taken seems unassail- 
able, for the money of our first two classes can never lose its value 
to such an extent as paper money; but for all that, I intend to»prove 
that paper money can be made a more stable standard of value than 
gold, silver, or bimetallic money. 

Adam Smith, M'Culloch, Ricardo, Tooke, Stuart Mill, Jevons, 
and other great authorities have freely acknowledged, and the facts 
of every-day life have proved, that paper notes, though inconvertible 
into gold, if made legal tender, can be kept at par with gold coins 
under certain conditions, i.e., they take the place of gold coins with- 
drawn from circulation. 15^ million pounds of notes issued by the 



J02 Tlir, I-:C()XOMTC AND SOCIAI. I'ROI'.LKM. 

Bank of England are not backed b>- guld, and yet they are at pai 
with gold, as they will alvvavs be required for internal circulation 
That paper money has often been of great benefit — even where it 
did not keep at par with gold — is also well known. 

R. H. Patterson says in "The Economy of Capital" (p. 447): 
"How did England manage from 1797 to 1815, when there was 
hardly a guinea in circulation? That period was the most trying 
which the British Empire ever came through, a period remarkable 
for a great expansion of our trade and commerce; nevertheless, 
though gold almost disappeared from circulation, no difficulty was 
founcl in settling the foreign exchanges; and the Government was 
even able besides to obtain large sums of metallic money to pay 
and feed our armies abroad and to subsidize those of other states." 

The difficulty remains of finding the exact margin for the 
quantity of inconvertible paper monev which can be kept floating 
at par. Must not the paper depreciate, when a certain amount re- 
quired for internal circulation is overstepped, when, according to 
Gresham's law — that the bad money drives out the good — the gold 
coins have disappeared, and gold has to be bought at a premium for 
outside payments? 

The history of American Greenbacks has shown this very clearly; 
for it is an exaggeration or downright falsehood, which has 
helped more than anything else to discredit paper money, to 
contend that what brought greenbacks into disrepute, what finally 
reduced their gold-purchasing power to almost one-third of their 
nominal value, was the law which made the interest of certain loans 
and the custom duties payable in gold. These people do not reflect 
for one moment what the loans were contracted for. At that time 
many goods required by the country, especially for war purposes, 
could not be produced fast enough within the States, and had to be 
bought outside where greenbacks were not accepted, but where gold 
or other salable merchandise of some kind were demanded in ex- 
change. Now for the time the merchandise or gold thus demanded 
could not be produced in sufficient quantity, and money had to be 
borrowed abroad to»pay for the passive trade balance. The parties 
who lent this money wanted their capital and interest guaranteed 
in gold; fomobody could tell whether greenbacks would ever pro- 
cure them gold at their face value or goods at a corresponding 
price, when even the very continuance of the Union was in question. 
So the foreign loans had to be made payable in gold, capital and 
interest, and it became necessary to ensure a sufficient gold, revenue 
to pay for the incurred debts. It is true the Govcrmnent might have 
accomplished this otherwise than by making the duties payable in 
gold. These duties might have been made payable in greenbacks, 
with which the Government would have bought m the market the 
gold it required. But foreign excha:nges naturally were against a 
country which had an unfavorable balance of trade to pay for and 
no gold in stock for the purpose. Gold had to be borrowed in some 



MONEY. 103 

way of otiier at its market price, which grew with the demand for it. 
The Government's financial measures had nothing to do with the 
premium thus paid for gold, which was produced by the foreign ex- 
changes. The only difference would have been that instead of pay- 
ing duties in gold which they had to purchase at a premium with 
greenbacks, the importers would have to pay their duties in green- 
fbacks, but the amount of the duty would have been raised suf- 
ficiently to enable the Government to purchase the gold it heeded, 
The only difference would have been to force the importers to pro- 
vide the Government with enough greenbacks to buy gold, instead 
of having to buy the gold themselves. Greenbacks were bound to 
fall in value in either case, as long as their issue exceeded a certain 
quantity demanded for internal circulation. Still, their fall would 
never have been so considerable if the Government had not com- 
mitted the folly of authorizing the so-called ''National Banks'' to 
issue a currency of their own, even making them a present of the 
interest profit thus obtained. This concession added unnecessarily 
to the inflation. 

The friends of paper money would do well to profit by an 
experience daily realized in any department of reform work: the 
experience that exaggeration and radicalism overshoot their mark. 
The greatest enemies of a rational currency are those radical 
apostles of paper money who want it issued to any amount, secured 
by real estate. This class of currency reformers finds its principal 
adherents among land-owning farmers, who thus hope to obtain 
from the State cheap money on mortgages. Such a concession 
would merely add to the unearned increment by forcing up the 
prices of land, and thus the compensation which the community 
would have to pay some day when the people take back their own; 
but leaving this aside, the whole plan shows an entire ignorance 
of the currency question. There can be only one kind of security 
behind money, and that is its wealth-purchasing power. 

If real estate is the wealth on which the money is issued, the 
money, if issued beyond the needs of circulation, is only good if the 
real estate can at any time be obtained for it, which is not at all the 
intention of the men who propose the plan. They do not dream of 
handing over their farms and houses to anyone who presents for 
redemption the money lent to them on such security. They merely 
want to keep this money for an indefinite time, or at least for an 
extended period, at a low rate of interest. Their real estate is not 
in the market for the money they received; in fact, usually it is not 
in the market at all, most certainly not at those very periods when 
people want to see something substantial for the paper in their 
hands — the times of crises and panics; for at such moments their 
property would certainly not fetch more than was borrowed on it, 
and probably not even that. Thus the security is no security at all 
in the only sense in which a security is needed, i. e., to keep up the 
full purchasing power of money, the security that its issue does not 



I04 TITR TTCONmriC AND SOCTAI. PHoHLEM. 

exceed the quuntity of merchandise offered for money in the market. 

Can we blame gold fanatics if they stick to their gold standard 
as long as experience justifies them in the belief that gold, with all 
its fluctuations of value, is after all not subject to such excesses in 
this- direction as most of the paper currencies on record? But they 
leave out of sight the fact that not a single case is known in modern 
history where an inconvertible paper money was issued under 
normal conditions, for the pur])ose of providing a better money 
than metal coins. Invariably such money was issued in times of 
wars or revolutions, or at least as the result of acute financial dis- 
tress. Under such conditions it could hardly be expected that 
the issue would conform to rules adapted to maintain a fixed stand- 
ard of value for the paper, which in no way proves that such rules 
might not be devised. 

On the contrary, a closer investigation will show us the feasi- 
bility. A perfect standard of t'ahie for money is reached when the 
average price of merchandise does not vary, and this can only be 
obtained where the quantity of the money supply in the market 
adapts itself to the demands of the market, where more money ap- 
pears when prices tend to go down, and where the surplus dis- 
appears when the tendency is in an upward direction. This is im- 
possible in the case of metal money, whose supply depends on the 
goodwill of those who control the bullion market: but it is within 
the reach of possibility in the case of paper money, which can be 
supplied to any amount at the shortest notice, whose issue can thus 
be adapted to the market's exigencies, more money being issued 
when prices fall, and money being retired when prices rise. Thus, 
while our present lazv fixes the price of gold, the ;;r7i' task is to fix tlie 
airrage price of goods through a regulation of the nuincy circulation. 
All those conmiodities which constitute an appreciable portion ot 
the general turnover aie tabulated, their prices being multiplied 
with their turnover. The addition of the sums thus obtained gives 
us the average figure which has to guide us in the issue or with- 
drawal of paper money. 

Before I quote from "Honest Money," by Arthur I. Fonda, of 
Denver, Colorado, a detailed description of his scheme, I want to 
.say that, though perhaps its best exponent, T'onda is by no means 
the originator. A number of other proponents are mentioned in 
"Rational Money," by Professor Frank Parsons (C. F. Tavlor, 
Philadelphia), and in "The Measurement of General Exchange- 
Value," by Correa Moylan Walsh (Macmillan, 1901), though both 
lists are far from complete. For instance, the article of Professor 
Marshall, of Cambridge, is not mentioned, which appeared in the 
"Contemporary Review," of March. 1887: nor does either of the 
two authors speak of Silvio C-^sell. one of the most energetic 
prooagators of the principle, whose first jwblication on the matter 
dares from 1893, the same year in which I'onda came out with the 
plan; nor of Professor Alfred Russel G. Wallace, who proposed the 



MONEY. 105 

scheme in 1898. It is probable that such a simple and valuable 
method of obtainmg a money with an invariable standard has recom- 
mended itself to many others unknown to fame. 

The "Arena," of September, 1897, published a reproduction of 
a Treasurv Kote issued in 1780 in the State of Massachusetts, 
promising payment not of a fixed quantity of gold, but of a sum 
equivalent to the gold proceeds of given quantities of corn, beef, 
wool, and leather. This multiple standard was intended as a safe- 
guard against fluctuations m the value of the currency, and is 
described by the editor as the most nearly honest piece of money 
ever issued in a civilized state. This strange money points in the 
direction of a proposal made by W. Stanley Jevons in "Money," 
and, it seems, as far back as 1822, by Joseph Lowe, and 1833 by 
G. Poulet Scrope. 

The plan was that of using the multiple price standard, not to 
regulate the money, but as a standard of value for money contracts, 
by increasing the amount due if the higher sum of the table indi- 
cates a depreciation of money, and decreasing the amount if the 
reverse takes place. Only mere theorizers could ever make such a 
proposal; any business man would at once have seen its impracti- 
cability. Its adoption would keep all financial engagements in a state 
of perpetual fluidity. The amount of pensions, salaries, fines, taxes, 
duties, debts, in fact of financial engagements of any sort, would 
fluctuate continually according to the results of this kind of tabular 
standard. Just imagine what that means! A man has to pay his 
butcher bill of last year, another has signed a promissory note, and 
so on through thousands of mutual engagements of daily life. 
Before any payment is made the tabular standard must be con- 
sulted; a discount has to be taken of¥ or a premium is added, ac- 
cording to this tabular standard; and these complicated calculations 
are to be carried on dailv, hourly, and mostly by men to whom the 
job of multiplying quantities with prices and adding the products, 
when they buy a bill of goods, is already sufficiently complicated. 
When they have borrowed money, the calculation of the interest 
they have to pay is hard enough for them; and now they are also 
to add or deduct percentages varying with the money standard. 
Most of them will have to rely on the cleverer people who under- 
stand "this new fad"; and w^e know what that often means. Adding 
another trap for the unwary and ignorant, and heaping additional 
work on everybody, would cause this tabular standard to be looked 
at as such an unmitigated curse that people would rather put up 
with all the dangers of our monetary fluctuations than correct them 
in this insane fashion. 

The general abhorrence of inconvertible paper money enter- 
tained by most English economists of that period, alone can explain 
how intelligent men should have passed by the only practical ap- 
plication of the tabular standard to stumble into such impossible 
proposals. Had they been less prejudiced they would easily have 



106 THK KCON'OMIC AND SOCIAL PROBLRM. 

seen that, instead of using their tabular standartl to change the 
amount of mone\ obhgations. leaving the money circulation itself 
untouched, the obhgations might liave been left untouched by 
changing the money circulation acccording to the tabular standard 
for tile purpose o( balancing the variations of the latter. By thus 
steadying the price ot merchandi«ie, the value or price of money, its 
purchasing power, remained invariable, and money obligations 
could safely be left alone These enemies of paper money ought 
to have seen that the danger they were atraid of — Inflation — can be 
guarded against by means of the very instrument ol which they 
wanted to make such a preposterous use fust as a fall of prices 
demands the issue of more money, so prices rising above tfie normal 
at once indicate that too much money has been issued, lousiness 
men, members of Congress, or chambers of commerce through 
their experts can thus easily find out at any time whether an under- 
or overissue has taken place, and whether an increase ot a restric- 
tion of the money circulation is called lor, thus controlling the 
parties entrusted with the note issues. 

Fonda says' "Let a comnnssion be appointed by Congress to 
select a sufficient number of commodities, say one hundred, to be 
used as a standard of value 1"his selection should comprise the 
commodities most largely bought and sold and most independent 
of each other in their values, preference should be given to those 
which are product^; of this country — but foreign products "should 
also be included — and to those which are reliable in quality and of 
which the prices are regularly quoted — such, for instance, as wheat, 
corn, oats, rye, barley, cotton, wool, tobacco, rice, gold, silver, lead, 
copper, tin. iron, steel, cotton and woolen cloths, leather, hides, 
lumber of various kinds, sugar, beef, pork, mutton, etc The aim 
should be, while not including all commodities, which would of 
course be impossible, to include a sufficient number and of such 
varied kinds as to fairly represent all. Less than a hundred might 
be sufficient, or it might be better to take more than that number. 
With the aid of statisticians, the average price of each of the com- 
modities selected, in their principal markets for a few years past, 
should be ascertained and tabulated The commodities, of lourse, 
should be of s])ccified grade and quality, and m a specified market, 
but not necessarily the same market for all The length of time 
over which the average of prices should extend would be determined 
as closely as possible by the average length of time that existing 
indebtedness had run (The reason for this will be explained later.) 
In addition to the average prices of each conmiodity, the approxi- 
mate amount or value annually consumed in this country should be 
ascertained. 

From these data, a table should be prepared showing the 
amount one dollar would have purchased, on the average, of each 
of the commodities for the time determined, and from this a final 
table should be made taking such multiples of the amounts found in 



MONEY.- 107' 

the previous table as should represent their proportionate consump- 
tion—in other words, their relative importance in trade. 

For example, suppose- the time selected were five years, as rep- 
resenting twice the average time existing debts had run; that during 
that time one dollar would have bought, on the average, 1.25 bush- 
els of wheat, or 3 bushels of corn, or 100 pounds of pig iron, or ten 
pounds of cotton, all of specified grade in specified markets; that, 
further, the importance of each of these commodities in the trade 
of this country was in the approximate proportions of 5, 3, 2 and i, 
respectively. Then the final table would show: 

5X1 25 = 6.25 bushels of wheat = $5.00 

T,X.3 = 9 bushels of corn = 3.00 

2X100 = 200 lbs. of pig iron = 2.00 

iXio = 10 lbs. of cotton = i.oo 



Total $1 1.00 

Considering these four commodities only, the dollar, as the 
unit of value of our s\steni, would be defined by law as one eleventh 
of the sum of the values of 6.25 bushels of wheat, 9 bushels of corn, 
200 pounds of pig iron, and 10 pounds of cotton. This illustrates 
the method of arriving at, and the definition of the standard. Ex- 
tended to all the commodities selected, the definition would be the 
same with the substitution of the proper figures. This would evi- 
dently provide a standard that would closely represent the average 
purchasing power of one > dollar for the time selected. As to the 
length of time over which this average should extend, if there were 
no such thing as existing debts, it would clearly be of little impor- 
tance what the value of the unit selected was, just as it would be of no 
importance now whether the foot or the pound had been originally 
fixed at greater or less than their present length and weight; but 
because of the vast amount of existing indebtedness, the value of 
the unit that is to be made permanent should be most carefully 
fixed at the value it had when such indebtedness was created, so 
as to do as little violence as possible-to outstanding obligations. The 
fact that in the past the debtors have been wronged to the ad- 
vantage of creditors, by an increasing value of money, furnishes no 
excuse for a reversal of this injustice and a wronging of creditors 
by permanently fixing the value of the dollar at what it was twenty 
or thirtv years ago. The debtors and creditors of to-day are not 
the same individuals who stood in those relations in the past, and 
two wrongs do not make a right. 

The object shovild be, therefore, to determine as closelv as pos- 
sible how many years, on the average, existing debts have run, and 
take twice that period for the total length of time over which prices 
should be determined. This would doubtless work a slight injustice 
to those whose debts are of a longer standing — though a less in- 
justice than they are subject to now — and would be a slight in- 



I08 THE ECONOMIC AND SOCIAL PROBLEM. 

justice to the creditors of more recent date; but as some time would 
be occupied in getting the system to work, so that the actual value 
of the money would correspond with the standard, the injustice 
would be more or less distributed, and would at most be slight. It 
would be substituting only a gradual rise in prices for the decline 
that has been going on, until prices were back to the level of per- 
iiaps two or three years before, and then fixing the level at that 
point. 

After the statistical work outlined above has been completed, 
Congress should repeal the present monetary laws, substituting for 
the definition of the "dollar" the new definition agreed upon. It 
should then provide a currency or money to take the place of that 
now used. This currency should be a paper money similar to our 
"greenbacks." It should be a legal tender for all debts public and 
private (except, of course, such as by their terms are payable in 
gold). In fact, the only difference between such notes and existing 
"promises to pay" of the government would be that the new notes, 
as is evident from the new definition of the dollar, would be prom- 
ises to pay a definite value, and not a definite quantity of one com- 
modity of uncertain value. 

The notes could be made redeemable in any commodity at its 
current market price, and should contam a pledge, on the faith ot the 
government, that the amount of the currency in circulation would 
be at all times so controlled by the government that its actual pur- 
chasing power would conform to the standard on which it was 
based. 

To carry out this pledge, it would be necessary to have a small 
corps of statisticians who would receive and tabulate the current 
market prices for each day; and who would calculate therefrom the 
aggregate prices of the specified quantities of all the commodities 
constituting the standard — in similar form to the final table before 
mentioned, and of which an example has been given. If this aggre- 
gate for any day were more or les than the total of the standard 
table, it would show that prices in general had risen or fallen, and 
some money should be withdrawn'from circulation, or more issued 
until the daily total corresponded with the standard total. 

Doubtless several plans might be proposed for putting such a 
money into circulation and controlling its volume. The following 
seems to commend itself by its simplicity and effectiveness of con- 
trol, for at least a part, if not all, of the issues, viz.: The money to 
be loaned by the government on approved securities, such as their 
own bonds; other bonds of states, counties, cities, railroads, etc.; 
warehouse receipts, gold and silver deposits, etc. First-class com- 
mercial paper, when guaranteed by solvent banks, might also be 
taken, especially in case of threatened panic. In short, such securi- 
ties as would be considered the safest for banks and trust companies 
to loan upon, all under such proper restrictions and safeguards as 
would insure their safety as collateral. The rate of interest charged 



MONEY. 109, 

for such loans to be a variable one, decreasing as prices tended to 
fall, and increasing as they tended to rise, and without other re- 
strictions This would absolutely control the volume of money, 
within narrow limits, since more would be borrowed at a lower, and 
less at a higher rate, of interest, yet the control would be elastic. 
While the loans should be for a short time, they could be renewed 
at pleasure, and as often as desired, at the current rate of interest, 
the security remaining good. 

Such a plan would not interfere with general banking business 
to any considerable extent. In order to prevent monopoly, the loans 
should be open to all on equal terms, and the list of approved securi- 
ties acceptable as collateral should be made as wide as possible, con- 
sistent with safety. It would probably be found by experience, how- 
ever, that the principal borrowers direct from the government would 
be the banks, who would reloan the monev (at a sufficiently higher 
rate to pay them for their trouble) to their customers, on local securi- 
ties, commercial paper, etc., as they now do. The legal tender pro- 
vision of the notes would be necessary only as specifying the 
medium 111 which payment of debts should be made, to prevent mis- 
understanding, and for the protection of debtor and creditor alike. 
The new dollar being a quantity of value, and not of a specified 
commodity, a loan might be returned in any commodity of that 
value but for some such provision The provision could in no case 
wrong a creditor, for what he would receive m payment for the debt 
would be a positive guarantee to deliver him the value specified m 
an)» commodity he chose. Making the money redeemable in any of 
the commodities on which it is based would be only a form, and 
might be omitted; it is suggested merely as obviating any objec- 
tions to an irredeemable money. Of course, the government would 
never be called upon to so redeem money, since the holder of it 
could exchange it for the commodity wanted in the open market to 
equal advantage. No reserve of commodities of any kind need be 
kept, therefore, for redemption purposes. One great difference be- 
tween this plan and existing systems will, of course, be seen at once- 
the present system promises a definite amount of gold, and must, 
therefore, keep a gold reserve; but as no one really wants the gold, 
except in exchange for commodities, this plan proposes to do away 
with the necessity of a gold reserve bv guaranteeing that the money 
can be directly exchanged for such commodities at the current mar- 
ket price — which is all that can be done with the gold* — and that 
the average purchasing power of such money shall not vary as 
gold does." ("Honest Money," pages 158-173.) 

The nationalization of commerce, proposed in Chapter VIII, 
would make the new paper actually redeemable in merchandise ob- 
tainable from the issuer, like the exchange notes of the co-operative 

*This ought to read "could be done with gold if, in consequence of its 
present monopoly position, it had not become an instrument of extortion 
and blackmail," 



ilO THE ECONOMIC AND SOCIAL PROBLEM. \ 

societies, or the Mutual Banks of Chapter \ 11 The State in «uch 
a case would pay lor its merchandise purchases with the new money 
and would accept it in payment. 

Even without the centralization of commerce ihe general ac- 
cessibility ol the new money can be secured through People's Banks 
on the Raififeisen system, of which the first was founded m 1849. m 
the Westerwald. Germany — the mother of over a thousand offspring. 
These banks, together with another kind of people's bank on the 
Schultze-Delitzsch system, and the different kinds of co-operative 
institutions organized by the people, possessed, in 1892, a capital of 
1,250 million dollars Though the Raiffeisen banks lend on personal 
security, the losses were only about 60 cents per member in that 
vear. As thev are based on an extensive or unhmited liability, each 
member watches his tellow-members, which is not difficult, as the 
members usually live close together 

In Italy, 28.68% ot the members were then t-ngaged m MTiall 
industries and trades, 8.40% were artisans, 15.40% were "school 
teachers. Government employees, etc., 19.08% small cultivators, 
and 3.18% laborers The balance were agriculturists, manufacturers 
and traders, or persons without a calling. One thousand societies 
existed with over 150 million lire capital (30 million dollars) They 
lent out over 500 million lire, and had about 400,000 members. The 
losses in Milan, a society with $2,500,000 capital and reserve, had 
not reached ten cases in twelve years. 

A leading feature of these banks has been the capitalization of 
profits, a principle especially to be recommended to co-operative 
societies in general The security offered by these banks can best 
be concluded from the fact that in 1866 and 1870, the two war years 
when deposits were withdrawn wholesale from other banks, they 
were actually pressed upon the Raiffeisen banks, without a time 
limit, as long as they proved trustworthy and used the money for 
productive purposes. The Rhineland law courts even allowed trust 
money to be lent them. 

How much greater will be this security where the money due 
does not consist in a scarce commodity, but is expanding with the 
demand! These banks could be the main instrument through which 
the state issues the new money to the producers and traders, as 
long as trade is not nationalized. Their collective security is good 
en6ugh to procure them the loans of all the new money which will 
be wanted as a cover of their check accounts. 

Then there will be the Postal Savings Banks, which do such 
splendid service in some other countries and which wc are sure to 
get as soon as the only argument against them in this country is put 
aside: the personal interest of our private bankers, just as we shall 
yet obtain a parcel post when the six reasons of Postmaster 
\\'anamaker. why we should not have it. have been met; the six 
express companies. The new I'ostal Savings Bank, with a branch 
in every post office in the Country , would not only accept dejjosits, 



- MONEY. Ill 

but ir.ight also grant loans against certain specified securities, which, 
in case of need, it'might obtain from the State's money-issuing de- 
partment. It could also attend to free transfers of accounts all over 
the country, as it is doing in Austria-Hungary, where, in 1906, 1500 
million dollars were transferred through the Postal Savings Bank, 
and 3700 million dollars were paid with the checks drawn on this 
institution. Switzerland copied this excellent system in 1906, and 
Germany intends to do so now. 

Professor Erwin Nasse sees a certain difficulty in the work of 
exactly finding the quantities of the different articles which are to 
form the basis of the calculations. Others have discussed the ques- 
tion whether wages, tools of production and land values, i.e., rent, 
ought to be included in the lists. In any case, we shall never quite 
eliminate all sources of inaccuracy; but by the wanderer lost in the 
wilderness, even the rough indications of the native he meets, as to 
direction and distance, will be welcomed. He will not refuse to 
avail himself of them because a map with exact delineations would 
be preferable. Even an approximate price standard is better than 
none at all, and certainly no system of tables made out on the best 
available data would hide from us fluctuations like those, for in- 
stance, which, in the English crisis of 1857, caused the prices of the 
principal staples to fall 2y% within two weeks; not because their 
cost of production had decreased so much within that short period, 
but because money had suddenly become exceptionally scarce. Pat- 
terson, in "The Economy of Capital," mentions cotton, going down 
from 7 to 43;^% for the different numbers between August 15 and 
November 5, 1866, in consequence of the scarcity of money (p. 366). 
It would never do to give up the attainable because perfection seems 
out of reach. However, I do nOt think the difficulty quite so great 
as Nasse finds it. New Zealand gives fairly exact statistics 
of the turnover made in the different trades, and there 
is no reason why other countries should not succeed as 
well. Of course, we would not take retail prices, but the 
prices obtained by the producer. If we gave retail prices, we should 
only increase the total of each article in about the same proportion 
without affecting the result. If prices vary in different parts of the 
country, we should take the middle price. Razv materials would 
figure several times in the list wherever they are used as the com- 
ponent of other merchandise; but so would manufactures which 
enter into the composition of other fabrics, such as leather in shoes 
and saddlery wares, cotton thread in cotton cloth, etc. This can only 
affect the quantity relation which each article can claim; but as the 
same addition to quantity takes place in all branches of manufacture 
it does not sensibly affect the final result. It makes no difference 
whether in our lists the price of every article is multiplied with half 
or double the quantity : the average will not change thereby. Neither 
can it well be avoided that some manufactures which enter into the 
composition of others will not appear in the list, because they are 



112 TITF ECONOMIC AND SOCIAL T'KOBLEM 

produced in the same factory, and thus do not pass ilirough the niar 
ket; as, for instance, where the yarn is '^pun and*v\ovtn in ilu- '-amc 
works or where the tannery and boot tactor\ gre m one hand and 
the product thus wdl only figure once where others manutaciurcd 
by different firms are counted twice This doe-^ not matter much, 
however, as such causes of error will occur in cHffcrent branches, and 
thus wdl compensate each other in a certain measure Land 7'alitcs 
and rents, on the otlier hand, ought not to figure in the hst. for their 
relation to the value of money is not the same as that of the products 
of labor. Though both rise with the rise of prices and the deprecia 
tion of money, it does not follow that the opposite tendency will 
force them down; for the simple reason that the fall of prices in our 
times is mostly due to the greater productivity of labor m conse- 
quence of technic improvements, and that this fall has by no means 
kept pace with the increase of this productivity. The balance appears 
to a small extent in a rise of wages, to a larger extent in the increase 
of profits, including mterest, but chiefiy displays itself in the rise of 
rent. Rent and land values have risen much faster than the value of 
our metal money, which is easily accounted for by the fact that, 
though the quantity of our metal money does not increase so rapidly 
as the productivity of labor, still it increases quicker than the surface 
of available land. The price of the latter, therefore, is forced up 
more rapidlv The inclusion of land values and rents in our tabular 
standard would therefore simply falsify the result. We might see 
prices of goods fall with rising land values and rents, and if we in- 
cluded the latter in the tabular -standard they would produce a cor- 
responding counter effect on the influence of the price fall, and thus 
at all events prevent a sufificient issue of new money. On the other 
hand, a new issue of money would cause such an upward tendency 
of land values that the currency restriction this would entail would 
overstep the real necessity. 

Wages ought not to figure in the tables, because they form a 
part of cost price. As C. M. \\'alsh correctly remarks, "what labor- 
ers give in return for their hire is not the labor, which nobody wants, 
but the product of that labor." To count wages, after having counted 
the product paid for with these wages, would have the same effect 
as the double counting of raw materials Of course. Fonda's plan 
of lending out the new money and of regulating its issue through 
the interest rate, a flood-gate lowered and raised according to the 
demand, is meant only for that portion of the money circulation 
which is in excess of a certain minimum below which the demands 
of the market can never fall. The money required below this line 
need not be lent out, but can be paid out for public improvements, 
for instance the construction of railways, canals, etc. 

It is questionable whether the regulation of the money circula- 
tion need ever entail a withdrawal of money from circulation. In 
all probability it will only mean a restriction of the issue. My 
reason for believing this rests on the steady increase of productive 



MONEY. ^113 

power, population and trade, liable to assume much greater pro- 
portions than those we are used to in our time with its unnatural 
fetters on circulation, mostly due to our currency system. More 
currency will thus be demanded all along, and a rise m prices would 
in most cases not demand a retirement of money from circulation, 
but a temporary raising of the interest flood-gate which governs the 
volume of the daily issue. 

That, as Tooke and Newmarch have proved by many facts, 
an increase in the money circulation does not necessarily bring 
about a depreciation, is also illustrated by the case of Brazil, given 
in the report of the Committee on Indian Currency, of 1893 (par. 
92): "The case of Brazil is perhaps the most remarkable of all. as 
showing that a paper currency without a metallic basis, it the credit 
of the country is good, can be maintained at a high and fairly steady 
exchange; although it is absolutely inconvertible, and has been 
increased by the act of the Government out of all proportion to 
the growth of population and of its foreign trade. The case, it 
need hardly be said, is not quoted as a precedent which is desirable 
to follow. The Brazilian standard is the milreis, the par gold of 
which is 27d A certain number were coined, but have long since 
left the countrv, and the currency is, and has since 1864 been, in- 
convertible paper. The inconvertible paper was more than doubled 
between 1865 and 1888, but the exchange was about the same at 
the two periods, and very little below par or 27d." Besides, an m- 
crease in the money issue may not mean an increase of the money 
circulation. The money mav be kept in the vaults of the Treasury 
or State Bank, at the disposal of its depositors who opened a check 
account with it. The checks thus drawn may be the main circulat- 
ing medium as they are in our time. 

The method proposed by Fonda to effect a regulation of the 
money issue: the raising of the interest rate, or even a suspension 
of loans, may meet with a certain prejudice, because we meet with 
the application of this method under absolutely opposite conditions, 
where it has an aggravating effect. At present the rate of interest 
is raised and credit is limited to a minimum in times of financial 
crises which force the banks to such steps. These steps in their 
turn intensify the crises, no matter how much they may be demanded 
in the interest of the banks. The mere proposal of raising the in- 
terest rate must therefore call up unpleasant associations. A closer 
observation, however, shows us that the new conditions produce 
totally dififerent efifects. To-day we find the interest rate raised to 
an abnormal height at the beginning of a crisis in consequence of 
the scarcity of money. Under the reign of the new currencv the 
reverse happens, for the scarcity of money finding its expression 
m a general fall of prices, government forces more money into the 
market, by reducing the interest rate so as to stimulate a demand 
for the new money issues. At the very time which sees our banks 
lock up their money and raise their interest rate or refuse loans 



114 Tllli ECONOMIC AND SOCIAL PROBLEM. 

altogether, a flood of new money submerges the market at reduced 
interest rates, to spur on enterprises, so as to enhven the demand 
(or labor and its products. The raising ot the interest rate, on the 
other hand, comes when money is plentiful. Thus at the very 
time when now the rate is lowest, stimulating speculation and forc- 
ing up prices, a rise of the rate acts like the drawing of a bridle 
to regain control over a runaway horse. The supply of money is 
reduced and the prices of goods return to their normal height. 

One objection will have to be met before we pass over to the 
effects of the new currency on the process of circulation in the next 
chapter: the influence of the trusts on prices apparently partly 
independent of the money circulation, which has been exhibited 
in this country during the past six years. Though the relation of 
the money stock to the turnover of merchandise has been an 
ominous one, prices have been artificially forced up by the great 
combinations, and even in the height of the financial crisis we are 
passing through, while I am adding these lines in the first days of 
January, iyo8, no noticeable reductions have so far been made, 
except in copper, in which an unprecedented overproduction had 
taken place. Pretty well everywhere else the combines have been 
able to meet any lessening of the demand caused by the monev 
stringency by a limitation of the output, without a reduction in 
prices. The main cause for this phenomenon must be looked tor in 
the fact that it is not the quantity of legal tender money, but that 
of the currencv which has an effect on prices, as has been shown 
before. The money quantity comes into play only indirecth , through 
its influence on credit and consequently on the currency Now, the 
financial power of the great combines has enabled them to force 
up the credit building to an unheard-of height, as the bank statistics 
of 1907 have shown us; and even now, during the financial crisis, 
this power has not entirely lost its hold. Independent ot this, 
however, it is evident that where a number of combining business 
giants have obtained such a p(jwer over the production of a country 
that they can hold back competition at lower prices, where financial 
causes tend to force on such competition, we can not expect to -^ee 
economic laws produce their usual effects The monstrous growths 
are not doing their nefarious work in this field alone The con- 
tinuance of their desi)otic power might not merely render the best 
currency svstem ino])erative, Init might have far more deleterious 
consequences, through their ir.terposition against the natural ef- 
fects of supply and demand, by curtailing the supply and preventing 
its adaption to the demand, through an adjustment of prices 
Cha])ters \ TI and MIT will show how such obstructive tactics can 
be dealt with, without special legislation. 



Ill 



CHAPTER IV. 

CIRCULATION. 
The currency is the economic body's life blood. 

THE preceding chapter describes a money that can be created free 
from two defects of metallic currency. It costs little to produce 
by dispensing with the immense cost of the precious metals. Its 
quantity can be regulated and thus kept from those changes in value 
to which all commodities, and especially scarce commodities like the 
precious metals, are unavoidably subject. 

We have seen how money preserves an unvarying standard 
of value, but we have not obtained any information how it could 
be made more easily accessible to the money users than coins. This 
will be the object of the present chapter. 

We have to consider twO' kinds of money circulation. One is 
that from the consumer to the producer; and from him as a con- 
sumer, to another producer; and so forth. We include here the 
intermediate stages of the middleman and of purchases not meant 
for direct consumption, but temporarily to help production, such as 
the purchase of tools and raw materials, freightage, etc. 

Another kind of circulation is the payment of money for land, 
mortgages, bonds, or similar investments. I shall try to illustrate 
the great difference between the two kinds of circulation by the 
transactions that take place between Plutus, one of our multi-mil- 
lionaires and two other parties. The one is Giles, a producer who 
obtains cash from Plutus for some kind of merchandise; the second 
is another producer, Jones, who receives money from Plutus for a 
piece of land. 

In the case of Giles, circulation is not impeded; what has been 
paid out by him as a producer comes back to him, for though 
sales may occasionally entail a loss, as a rule the producer whO' sells 
goods to a consumer makes wages or even a profit. This is well 
understood, so well that it has been assumed to apply to the other 
kind of transaction likewise. Our economists could find no dif- 
ference — as far a^ the process of circulation is concerned — between 
the transaction in which the capitalist buys directly or indirectly 
from the producer any product of labor, and the one in which he 
merely pays or lends to the producer the money for something 
which is not a product of labor; in our illustration: land. And yet 
the difference between the two transactions is ominous. 

We assume that in the possession of Jones the land had been 
an instrument of credit. His bank took a mortgage upon it, which 
has to be paid off when the land is sold; and thus the money ob- 
tained from Plutus merely takes the place of the money formerly 
obtained from the bank by Jones, Nq new money has been paid 



Il6 TllK ECONOMIC AM) SOCIAL PROBLEM. 

into his business funds, and uu\ one single penn) has been added 
to iiis purcliasing power. 

"Hut," will be replied by our economists, "the credit given to 
Jones bv the bank and repaid by him will now be given to some- 
one else, who will use it to purchase goods with; and we are prac- 
ticall}' right in saving that, as far as the process of circulation is 
concerned, it can make no difference whether this purchase has 
been made by the land-buying Plutus or by some other person to 
whom his money was passed over " 

This would be true if the bank had to refuse further loans on 
good real estate security until the debt of Jones was repaid; but 
such is not the case — would only be the case it the bank merely 
lent out real money. \A'e have seen that this is not the system of 
banks all the world over 

The loans and discounts of the banks and trust companies of 
the United States, including the savings banks, exceed ten billion 
dollars, while the total gold stock of the country hardly reaches 
one sixth of this amount \\'hat they do is merely to lend the money, 
but mostly the money promises brought in by one set of people, to 
another set. They act as bookkeepers and credit insurance agents 
for the business people of the country, who indirectly thus lend 
each other their money, or rather their hope of getting money in 
case it is wanted; for comparatively little money passes or even 
exists in the country. 

The whole arrangements remind me very much of a story I 
once read. The Mississippi had overflowed its banks Hundreds 
of fine logs were rapidly drifting past a crowd of negroes who had 
gathered on the shore. They looked shiftlessly at the timber, when 
a white man, a stranger in those parts, addressed them. 

"Boys," he said, "I will give every one of you as salvage one- 
half of the logs which he lands!" 

With a will the men went into the water, and soon quite a 
number of valuable logs were piled on the shore They took half 
of them for their labor, and the stranger took possession of his 
share and sold it to a neighboring sawmill. 

"Fools, those negroes!" the reader will say. "Nothing pre- 
vented them from securing the timber for tliemselves, without giv- 
ing a share to a stranger, who had not moved a finger, and who had 
not the least claim on the tinii'M-." 

Certainly; but, my dear friuid, are you not acting in the same 
manner whenever you pay a bank for the right of an overdraft? 
The bank, in this case, only allows you to make use of your neigh- 
bor's labor or its products, whom you finally repay indirectly by 
the products of your own labor. The bank only does the service 
of a clearing-house for you. Tt provides the tokens required for this 
mutual exchange, and for this service, the work of bookkeeping 
and for the guarantee undertaken by them, the banks have en- 
riched themselves by billions. The mere fact of having as good as 



CIRCULATION. Hy 

Uo rnoney does not in the least deter our banks frotii giving credits, 
from allowing debtors to draw checks; because they know that the 
checks will come in as deposits on the other side, and generally 
real money will neither be demanded, nor could it be paid if de- 
manded in the generality of cases. 

The results, therefore, of the transactions between Plutus and 
Jones will be that a rich man, who does not overdraw his account 
at the bank, bought land; on the strength of which a poor man 
had drawn a certain amount of checks, which he now repays with 
the check obtamed for his land from the rich purchaser. Thus the 
currency origmally given to the capitalist by his rent or interest 
debtors does not return into circulation, as the transaction has not 
enabled the land seller to increase his right of check drawing. Jones 
merely repaid his debt to the bank, and there the matter ends. 

The debtors of a rich man pay him their interest or their rent. 
The money, or the right of demanding money, has been paid to 
them by other workers, who expect to find employment through the 
continued circulation of this money; but they are disappointed. The 
money has left the market, and it is kept out of the market, or, 
rather, a right of check drawing exercised before is now suspended. 
Nothing has happened but a change m the basis of a given worker's 
check operations. The check of Plutus simply took the place of the 
mortgage as the security upon which Jones' checks were drawn. If 
land, bonds, or other securities of this kind, on which the banks 
allow overdrafts, were unlimited in amount, this would not matter; 
for someone else would obtain a credit on such security from the 
banks, and the checks drawn on this new account would take the 
place of the repaid overdraft in circulation. But the quantity of 
such securities is limited; and, while in normal times credit is not 
refused to those who can supply them, from year tO' year more of 
these securities come into possession of a class of people too rich 
to require credit, and who do not use them as a basis of credit 
money, of currency circulation, as the parties who sold them had 
done. "It isn't money that is scarce, it's collateral." 

In this way the accumulations of the rich disturb the equi- 
librium between supply and demand; in this way the means of cir- 
culation obtained by them does not return into circulation. 

The subject is too important and too new to meet full under- 
standing at once, and yet without clear comprehension at this 
point, a vital part of the problem must remain an unsolved riddle. 
I therefore beg my readers not to skip, but, on the contrary, to 
thoroughly study, again and again, this momentous relation be- 
tween wealth distribution and the supply of the circulating medium. 
To, give all possible help on mv part, I shall now sum up the sub- 
ject by condensing its principal features into as few sentences as 
possible. 

M is the stock of the universally recognized legal tender money 
of the world, practically represented by 5 billion dollars of gold 



Il8 THE FXONOMIC AND SOCTAT. PRORLENf • 

coins and bullion. Part of the stock circulates, part of it is 
hoarded by parties who do not issue any credit money tor it, and 
the balance lies dormant n^ the vaults and sales ol the banks, the 
government treasuries and the business world to serve as the basis 
of a thirty-fold credit currency circulation: C (money promises or 
representatives) To simplity. we shall leave the circulating real 
nionev out of account as too insignificant when compared with the 
total of the circulation, and also the hoards used or not used as a 
basis of credit money; for this latter kind ot money has practically 
disappeared from the world lor a time, and we shall consider 30 C 
as representing the whole circulation 

Thirty C is not enough to supply a means of exchange sufficient 
to enable the expansion ol trade: T, to keep step v\ith that of 
productive power: P. so as to preserve its level with buying or 
purchasing power: B. Unless B ^ P, commercial depressions and 
want of emplovment are unavoidable. Through improved machin- 
ery and other causes P doubles to 2 P, but B can only advance to 
2 B if T can advance to 2 T This is only feasible il 30 C ran ad- 
vance to 60 C* (The increase of M itself through mining — alter 
abrasion, use in the arts and hoards not serving as the base ol C 
are deducted — is too insignificant when compared with the 
enormous increase of P and T to need consideration ) Such an ad- 
vance IS dangerous, even where the best of secuntie*: are offered, 
as long as M alone is legal tender; for it signifies that 60 instead of 
30 promises of money are to rest on one single M us their basis, 
but let us suppose our capitalists risk this danger m normal times 
where what they consider good security is supplied These ^^ecuri- 
ties (collaterals) are principally only of two kinds: i. land or 
monopolies connected with it; and 2, the bonds ol governments or 
public bodies. The latter may safely be left out of consideration 
where such a large amount of new securities is required as the in 
crease of 30 C to 60 C implies, though everv vear sees an average 
issue all over the world of over $500,000,000 new government bonds 
We must also take into account that a very large part of these 
bonds are in, or gradually come into the possession of rich people 
who do not use them as collaterals for credits. 

Nor are new collaterals needed; for — though the land "surface 
does not increase, land values — L — grow with P But. as shown 
in the case of Jones and Plutus, L is continually passing from the 
possession of those who use it as a securi'v for the issue of C into 
that of men who require no credit. In the chapter on interest, the 
principal cause will be shown, which tends to accelerate this trans- 

* Of course, this is not mathematically correct, for a great deal depends 
on the rapidity of the circulation The same amount oi currency cdn supply 
a much more extensive trade where telegraphs and railroads exist ihan 
where more primitive modes of comtnunication obtain But assuminu an 
existing intensity of the circulating process as remaining unchanged lor the 
time, my formula can safely be adopted 



Circulation. iig 

fef, and so increases the rapidity with which the gulf widens be- 
tween the demand for larger quantities of C and the possibility 
of supplying the security, the collaterals, without which C is not 
forthcoming. The form which C takes is immaterial, whether it be 
that of overdrafts or bill discounting. As C lags behind the de- 
mand, B, T, and P have to suffer, and the crisis is inevitable. 

It is here where the land question sends its ofifshoots into the 
circulation problem and where land nationalization produces its 
most important efifects. The influence on the distribution of wealth, 
due to the monopolization of natural opportunities by a minority, 
can hardly be exaggerated, but this monopolization until now has 
directly interfered with employment only in exceptional cases as 
far as this country is concerned. As a rule, the land owner is willing 
to let the land at leases corresponding with the tenant's paying 
capacity. Practically, private land ownership interferes with circula- 
tion only by transferring the principal credit basis, the best col- 
laterals, from the possession of the masses, who used them for the 
extension of the credit circulation, into that of the few, who do not 
require any credit. Thus credit is prevented from keeping pace 
with the increase of the turnover; at all events, of keeping pace as 
far as the narrow mone)' basis finally permits. 

When the foregoing causes of the growing discrepancy be- 
tween productive and purchasing power are well understood, the 
occurrence of crises will cease to excite surprise; the difficulty will 
be to understand how we can ever have good times as long as the 
described fundamental cause is at work. Even this, however, can 
easily be explained. We must not forget that the real nature of 
the evil is almost absolutely unknown. A few students of economic 
science may have an inkling of the truth ; but the masses, includ- 
ing our captains of industry and commerce, have come to look at 
commercial and financial crises somewhat in the light of meteoro- 
logical phenomena, certain to occur at more or less regular in- 
tervals, forgotten as soon as they are over — just as a fine sunshine 
will make us turn out light-heartedly in thinner garments, unmind- 
ful of the fact that only yesterday we were caught in a shower. 
In the same way, the least sign of returning prosperity finds us all 
eager to make up for the depression we have just endured, and 
this very hopefulness must naturally have the effect of stimulating 
business. It matters little what may have produced the first signs 
of reviving trade. It may be a war, with its destruction of labor's 
products, and its requirements of life and property annihilating 
armament, its withdrawal from the labor market of thousands of 
strong men, whose consumption temporarily increases, and whose 
absence from competition enables those who remain to obtain full 
and paying employment, and thus also to augment their consump- 
tion. Or there may have been expensive changes in armaments 
such as followed that onslaught of the Merrimac on the wooden 
ships of the Union fleet which introduced an era of armored ships; 



120 THE KrONOMlC AM) SOCIAI PROnT-ENf. 

or just as the Prussian victories in tlie sixties forced all nations to 
excliange the obsolete muzzle loader for modern guns. Or some 
great progress in the" technic field, such as the last three decades 
experienced in electrotechnics. may have called forth a large de- 
mand for labor and products of labor. Or a San Francisco earth- 
quake and fire may make room for new production; a Panama canal 
and new railroad constructions set labor in motion. No better 
proof of the general ignorance in this field can be supplied than 
the fact that the very phenomena here recognized as having a 
prophylactic effect are often proclaimed the causes of the crisis; 
we hear of "a frantic speculation which started new enterprises 
beyond our means; of the growing war and marine budget; of 
destructions through war, earthcjuakes and fires putting forth in- 
creased demands on our national capital." 

Of which means, of which capital do such men speak? What 
w-as rec[uired for the production they mention? Certainly not labor 
and land; for where both are obtainable all other means of pro- 
duction are accessible. Machines, tools and means of transporta- 
tion are also products of labor and land. Now, independent of the 
fact that even during the prosperity period thousands of w'orkers 
looked in vain for paying employment, is not the very essence of 
the crisis found in the difficultv in which millions find themselves 
of securing a chance for the application of their productive power? 
And the land? Do not landowners look in vain for labor provided 
with the means of production — which in their turn are the outcome 
of labor and land — to make use of their land above and below the 
earth's surface? Their prices may be driven up by speculation, but* 
not beyond purchasing or renting power. 

On the other hand, if as they pretend we had not enough 
capital at our disposal to replace all that wars and nature de- 
stroyed, or produce the new instruments of peace and war, how 
did we actually do this work^ We did it without anybody having to 
suffer for it; on the contrary, enabling millions to live better, 
who otherwise might have swelled the army of the unemployed. 
If all of them had been fully employed all the time, with the best 
machines, much more wealth could have been created; and nothing 
hinders us now from continuing in wealth production on a greater 
scale than ever; nothing, but the absence of sufficient lucaus of cir- 
culation; and here is where we find the capital deficit of which we 
hear so much. Can that be called capital which can be supplied 
in any quantity and practically without cost? — How^ever the 
temporary revival came about, its effects are over-estimated and its 
transitoriness is ignored. At once hope rises on all sides, and this 
effect reacts upon the cause. The retailer gives larger orders than 
the increased demand warrants, the merchant lays in a large stock 
to meet the requirements of the trade, and the factories working at 
full pressure increase their facilities by adding new buildings and 
more machinerv. The so-induced demand for more workers teni- 



CIRCULATION.: 121 

porarily raises wages, consumption is correspondingly increased, the 
demand becomes greater, and thus is seemingly justified the as- 
sumption that at last the good times have come. 

But the same forces have been at work all the time; have 
been, in fact, intensified by the revival. The increased demand for 
goods has further stimulated the inventive spirit; enterprising manu- 
facturers have introduced improved machinery, which enables them 
to produce more with the same number of hands. For a time the 
banks have been S little easier in discounting and allowing over- 
drafts, and capitalists, ^\•ho otherwise -would have invested only 
in the best securities, are infected by the general hopefulness, and 
invest money in business. They become silent partners, buy stock 
or bonds in newlv founded industrial companies, or lend money 
at interest to the trade. Only the small fry, 'however, are caught in 
that way; the multi-millionaires are too old hands at the business 
not to know that, though temporary profits might thus be obtained, 
in the long run nothing is gained — that, in fact, the final losses 
overbalance temporary profits. 

It is stated that £404,000,000 of the capital invested in com- 
panies in Great Britain alone from 1892 to 1899 have been liqui-; 
dated, and the Inspector-General in Companies Liquidation says: 
"It appears that the total number of abortive or liquidating comr 
panics during 1899 was in the proportion of new companies reg- 
istered 60%, as against 56% during the previous year."' That such; 
losses generally do not affect the very rich as much as the poor 
's shown by the further remark: "About 37% of the capital be- 
longs to the more or less solvent class, while the remaining three- 
fourths in number, or 63% of capital, represent the insolvent class." 
Among the 37% we shall no doubt find very little money of the 
multi-millionaires, for this kind of men have learnt by experience 
that he who is satisfied with the 3% or 4% obtainable on good 
securities, is better off in the end than the speculator who hopes 
for 100%. It may once in a while pay to buy a single lottery 
ticket, but if all tickets, or a very large quantity of them, are 
habitually bought, loss is certain. 

If we go through the lists of dividend-paying stock companies 
we shall find that their average rate of profit does not exceed what 
could have been realized on good rent and interest investments. If 
we include the no dividend-paying companies, this rate of interest 
has not even been equalled. Werner Siemens, the departed chief 
of the Berlin firm of Siemens & Halske — one of the most suc- 
cessful manufacturers in the world — once said that when they built 
their works, they discussed the policy of buying a whole block of 
land, but finally desisted, and limited themselves to the purchase 
of the actual site. The result proved that if the firm had carried 
out the first intention, it would have made more money through 
the increase in value of the land than it ever made in business. 



122 THE ECONOMIC AND SOCIAL PROHLEM. 

And this was an exceptionally successful firm. For one house 
of this kind we find a thousand who never live over the first 
years of their existence. We have only to consult the lists of Dun 
and Bradstreet to obtain an idea how numerous the commercial 
failures and how immense the losses are. 

A prominent attorney of Los Angeles, California, told me in 
August, 1907, that of 3,000 stock companies he incorporated in 
ten years approximately 40% had bursted after one year, 65% after 
two years, 75% after 3 years, 85% after four years 'and after s \ears 
only 8% were left and paid dividends. 

The experience of large capitalists has shown that great fortunes 
can only be preserved and increased by investments in monopolies, 
and whether such monopolies consist in the possession of farms, 
tiuilding-sites, mines, quarries, forests, oil-wells and pipe lines, tele- 
graph lines, canals, or railroads, they are all summed up under the 
heading of land-ownership or land control, if we leave patents out of 
sight as of only short duration. The millionaires therefore let the lit 
tie ones buy the stock of the ordinary manufacturing concerns, while 
they themselves are content with owning the land on which are 
produced the food, cotton, hemp, flax, wool, oil, coal, iron, copper, 
tin, and other raw materials needed by the factories, as well as 
the transportation facilities, certain that in time all must come to 
their mill; just as the oil refineries had to submit to the oil and 
transportation monopoly. All they do beyond this to help the 
new companies is to give them credits on the strength of their 
land and monopolies; certain that sooner or later the whole propertv 
will fall into their hands without further outlay. The gradual passing 
of lands out of the possession of the masses who have used them 
as a basis of credit-money, into the hands of men who do not need 
any credit, is bound to continue all the time, and finally to pro- 
duce its efifect on the currency. The relative restriction of credit 
and of currency circulation through these permanent causes, con- 
tinues, while the inflation, through the transient causes, can only 
be of temporary nature; for the exceptional demand due to a war, 
etc., ceases sooner or later, and the increased taxation which the 
war entails further reduces the purchasing power of the masses, 
while the influx of the dismissed soldiers, now competing in the 
wage market, depresses wages and thus further reduces the demand 
of consumers. Add to this the increased output from all the new 
factories built during the revival, and it will easily be seen that the 
shopkeepers find themselves loaded with more stock than they can 
expect to sell for some time in consequence of decreased demand; 
and that they will be even forced to ask prolongations of bills from 
the merchants, who, being met by the double trouble of diminished 
orders and slower payments, get into difficulties which in turn reach 
the manufacturer and farmer. Credits in the bank are reduced, and 
the interest rate paid by the traders rises just when both the de- 



CIRCULATION. I23 

mand for goods diminishes, and when the money for sales comes 
in more slowly.* 

Workers are dismissed, others put at half time, which again 
decreases consumption, and thus further strengthens the effects of 
the depression. * 

The depression soon degenerates into a crisis, and when a 
few large failures have frightened the banks into greater caution, 
and thus into precipitating fresh failures, the crisis becomes a 
panic, and the panic intensifies until the strongest business men 
do not know whether they will be able to weather the storm. 

The course of events here described is not uniformly the same. 
Crises do not always develop into panics and panics sometimes pre- 
cipitate a crisis, or rather the transformation of a chronic crisis into 
an acute state. An example of the latter phase can be found in the 
American panics of 1893 and 1907. The sudden crash of the credit 
edifice, which far exceeded its usual height, suddenly withdrew the 
means of exchange from business, and brought about the acute 
depression which otherwise might have been delayed. This accounts 
for the distinction often made between industrial or commercial 
crises and financial ones; a .distinction without any essential differ- 
ence, somewhat like the difference between the fall of an exhausted 
man through lack of sustaining power, and the hastening of such fall 
through the intervention of an obstacle in the road. Without this 
obstacle the man might have dragged along a few steps further; 
without his exhaustion the obstacle would only have affected him 
temporarily. Practically, any business crisis is a financial crisis and 
vice versa. Business can only continue if enough money or money- 
promises are offered in the market for goods; when this is not the 
case it is absolutely immaterial whether the crisis is assigned to an 
oversupply of goods, or an undersupply of money. It is, as stated 
elsewhere, a quarrel whether John is taller than Charles, or Charles 
is shorter than John. 

Business now offers the phenomenon of a river which has been 
stopped in its course by some obstacle. It rises until the moment 
arrives when the stored waters burst their bonds with terrific effect. 
Thus the temporary arrests of the chronic crisis stream, called re- 
vivals of business, have no other effect than to substitute the crash 
for the gradual descent. To use another metaphor, these business 
revivals are only the advancing waves of a receding tide. The 
careless observer, seeing one particular wave come inshore farther 
than its immediate predecessors, may conclude that the tide is 
rising, when, in reality, it is rapidly running out. So those who look 

* "On the first intimation of a scarcity (of money) the rate rises, and 
they who must have money to pay the current expenses of large establish- 
ments, or to m_eet their outstanding obligations, are at the mercy of the 
lender. The captains of industry, and, through them, their laborers, are no 
longer the masters but the servants of capital." — Robert Ellis Thompson, 
"Political Economy" (p. 152). 



124 THE ECONOMIC AND SOCIAL PROBLEM. 

superficially on business revivals are too apt to ignore the fact 
that the tide is still running out in spite of the few advancing waves 
which impress us. 

We have now arrived at the point where the full effects of a 
scfentific paper currency can be understood. So far, we could 
only see how such a currency could put a stop to the sudden col- 
lapses we are so used to. by means of its elasticity and its price- 
maintaining effect; but we could not discern how it could prevent 
the chronic crisis: the slowly but surely widening gulf between pro- 
ductive and purchasing power. We have realized that credit, our 
real means of exchange, the basis of circulation, and consequently 
the condition without which production becomes impossible, is 
founded on a limited amount of securities, and 'that these are grad- 
vially passing into the possession of the creditor class from that of 
the debtor class: the producers. Thus the production, and conse- 
quently the purchasing power of the latter, is more and more 
cri])pled. Therefore, unless the new currency can be made acces- 
sible — not only to the owners of land values and bonds, but to the 
producers at large — we can never expect it to give any relief in our 
chronic disease of under-production, alias over-production. I sav 
advisedlv a relief, not a remedy, for only currency cranks expect a 
thorough social reform from a mere currency reform. The diag 
nosis of the disease given in the opening chapter has shown us that 
production is impossible without a corresponding consumption, 
which we do not get where the part of the product obtained bv the 
producing masses is too small, where their wages are too low. Cur- 
rency reform can help only in so far as it increases this part, as it 
raises wages, i. e., their purchasing power, an effect which can never 
be reached to the full extent needed, without a concurrent reform of 
our land laws. 

The greatest accessibility of the proposed currency to the pro- 
ducers is reached by bringing into the foreground a new class of 
securities, which, under present conditions, plays a relatively unim- 
portant part in finance: Merchandise, the product of labor What 
at present causes its partial exclusion from the rank of credit col- 
laterals, and restricts the security value of certain classes of mer- 
chandise, which are accepted as collaterals, is the risk of a decrease 
in their value. Part of this risk, caused through their perishabilitv, 
can, to a certain extent, be eliminated by insurance and safe storage. 
This risk is comparatively small with most products which do not 
partake of the nature of food-stuf¥s and goods which are subject to 
fashion. Tlie risk due to price variations, however, is comparatively 
great, as the daily market quotations prove, and especially the results 
of auction sales. It is well known that the latter, except for certain 
raw materials of very extended use, often bring only a fraction of 
cost price; and as auctions must always serve as the sirrtplest means 
for a creditor to realize on his security, it is not astonishing if, in 
present circumstances, capitalists are very chary of giving credits 



CIRCULATION. I25 

on merchandise. This would entirely change in the case of a 
money based on the prices of merchandise, especially when the 
prices realized at auctions are taken into account proportionately 
to their share in the general turnover The more the reform makes 
advances on merchandise the financial rule, instead of the exception, 
the more v.dll this share grow in importance. The very result of 
the reform on prices realized under these conditions will tend tO' 
give to the auction system the pre-eminence in the methods of whole- 
sale distribution which it now has only for that of a few staples. 
Manufacturers and farmers, producers of all kinds, will resort to this 
simple method of disposing of their produce at wholesale, in pref- 
erence to any other, as soon as a certain reliance can be placed on 
the prices obtained. And, on the other hand, this reliance will be 
strengthened in the same measure in which auctions predominate; 
for as auctions predominate, their prices will gradually become the 
almost exclusive gauge for the price tables of the Government's 
money-issuing department, and the effect of the money issue, in its 
turn, will steady the auction sale prices. 

The new basis of credit thus created in most departments of 
production is of such an elastic nature that its monopolization be- 
comes an impossibility. Its limits are co-equaJ to. those of produc- 
tion, which in our time are practically formed only by the demands 
of consumption provided with purchasing power. The want of 
customers limits our present production, which does not begin to 
approach the extent of our latent productive power. If the goods 
could be sold, our production, even without new inventions, would 
soon double, treble, quadruple its present total; and new labor- 
saving inventions will be forthcoming as soon as the demand for 
the product justifies their use. It seems certain that within a very 
short period a ten-fold increase of production could be reached, 
principally because the waste of power inherent in the present sys- 
tem, especially in the department of distribution, would disappear 
with the demand for more goods; of which more in Chapter VIII. 
The certainty of obtaining a market at regular prices will tO' such a 
degree eliminate the risks of business that practically the product 
will finally not even be demanded as a basis of security. The pro- 
ductive power — i. e., personal security — will largely take the place 
of the lien or pawn, as it already does with the German Raiffeisen 
banks, whose losses, even under our existing bad system, are abso- 
lutely insignificant, As I already indicated in the preceding chapter, 
these co-operative banks will then probably take the place of the 
present capitalistic institutions. They would be appropriate me- 
diums between the money-issuing state and the money-needing 
masses. Aided by the Postal Savings Banks, and by the Mutual 
Banks (see Chapter VII), they would disseminate the fertilizing 
credit-element far and wide; changing arid deserts into^ luxurious 
paradises 

The recognition of the problem's real nature has been greatly 



126 THE ECONOMIC AND SOCIAL PROBLEM. 

retarded by the false theories of the economists of the Adam Smith, 
Malthus, and Stuart Mill type. In Chapter II of Book IV of his 
"Wealth of Nations," Adam Smith summarizes in the following sen- 
tences what he has explained more elaborately in Chapter II of 
Book II: 

"The general industry of the society can never exceed what the 
capital of the society can employ. As the number ot workmen that 
can be kept in employment by any particular person must bear 
a certain proportion to his capital, so the number ot those that can 
be continually employed by all the members ol a great society, must 
bear a certain proportion to the whole capital of that society, and 
can never exceed that proportion No regulation of commerce 
can increase the quantity of industry m any societv beyond what 
its capital can maintain. It can only divert a part of it into a direc- 
tion into which it might otherwise not have gone; and it is by no 
means certain that this artificial direction is likely to be more ad- 
vantageous to the society than that into which it would have gone 
of its own accord " 

This zvage fund theory is also the foundation of John Stuart 
Mill's "Principles of Political Economy"; it is likewise at the bottom 
of Ricardo's fallacies, and of hundreds who followed these beacon 
lights intO' a disastrous shipwreck. 

I use these last words with full deliberation, as an expression 
of my firm opinion that these teachings have helped more than any 
other cause to retard our advance, bv obscuring the real problem, 
and thus preventing its earUer solution. This is easiK proved 

What capital does Smith mean ? Food and raw material? ? We 
have seen that they are in abundance, once the land is freed irom 
monopoly's fetters. Monev? Not so long as we can make paper 
and build printing presses. Tools and machines? It certainly can- 
not be proved that the emplovment of workers ever depended on 
the amount of tools possessed bv the societv of which thev formed 
a part. There is not a single case in the history of nations of men 
being permanently unemployed merely because they could not pro- 
cure tools of production; though there certainly are plenty of cases 
where there was too much work through the imperfection of such 
tools. If the old Egyptians had had our modern machinery a frac- 
tion only of the hundreds of thousands employed in constructing 
their gigantic stone monuments, which so eloquently speak of the 
waste of human labor, would have been employed on this work; or 
more work of the same kind would have been produced. It is not 
the lack of perfect tools, but the very efficiency of our modern 
machinery, which is directly responsible for the want of employ- 
ment our workers complain of, whatever the indirect cause proves 
to be; as we have seen in the introductory chapter 

But it may be replied that wherever more perfect tools are gen- 
erally used, inferior tools practically become worthless, because com- 
petition by means of their use has become impossible; and that, in 



CIRCULATION. 12/ 

this sense, Smith and his followers were in the right. My answer 
is that: 

1. Men provided with inferior tools have mutually supplied 
each other, and are supplying each other with the necessaries of 
life, without being in the least interfered with by others who use 
better implements. Even in some of our most civilized European 
countries communities are met with, especially in mountain dis- 
tricts not yet opened by railroads, where the people live compar- 
atively well, and where scarcity of employment is as good as un- 
known, though their tools and processes of production belong to a 
period lying at least a century behind us. It is only when our 
modem implements intrude into their mountain solitudes that the 
justly named "scourge" of modern times begins to make its appear- 
ance. During one of my tramps in the Bavarian mountain districts, 
I entered into conversation with a peasant. We talked of the rail- 
road which was going to be built through the section. "Formerly 
the peasant drove the gentleman, now the gentleman drives the 
peasant," was his criticism, which, in a few words, contains a deep 
meaning. He wanted to tell me that before the railway comes the 
peasant drives the travellers, and thus makes money, enabling him 
to purchase the things he wants. Now the capitalists of the city 
carry the peasant on their railway; and, instead of making money 
through the use of his carriage and horses, the peasant himself has 
to buy a railroad ticket if he wants to travel, as he had to sell his 
conveyances for want of customers. An income has gone; his ex- 
penses have increased. Now, if these people are fully employed and 
make a good living as long as they are only using their primitive 
tools, and if, as soon as modern improvements arrive, the same 
troubles and difificulties as to employment arise which obtain in 
more civilized parts, this can certainly not be ascribed to the want 
of capital; rather to an intrusion of too much capital. 

2. In fact, a want of tool capital never needed to exist by itself 
as long as our world has been inhabited by man. When the 
pierced bone was used as a needle, a curved stick as a plow, and 
a sling as an implement of the chase, as many pierced bones, crooked 
sticks and slings were produced, as the workers wanted. And in 
our time, when the sewing-machine has taken the place of the bone 
needle, the steam plow that of the stick, and the Mauser or Mar- 
tini rifle, the Bergmann pistol, the Krupp gun and Maxim quick-firer 
that of the sling — sewing-machine makers, instead of finding diffi- 
culty in supplying any amount of machines required, are only too 
anxious to obtain more orders ; and were a machine needed for every 
man, woman, and child in the world, it could be forthcoming in a 
comparatively short time. Nor have I ever heard that steam plows 
and other implements could not be supplied in any quantity needed ; 
unless there was a sudden unexpected pressure, soon to be relieved 
by increased facilities for production. The same holds good in 
regard to arms and any other thing produced by human hands. 



128 THE ?:rf)N<)Mir an'd sociai rK'oisLENr. 

There is hardlv a single article against which the ctn' of "Over- 
production'" has not been repeatedly raised 

This complaint certainly does not <;ho\v a scarcity of tool capital, 
but that Its supply exceeds the demand, and the demand lails because 
the workers do not receive wages corresponding to the increased 
efficiency of the machines Our mean? of j^roduction, defective as 
they are to a certain extent — principallv because we cannot let our 
technic progress have full play for fear of the consequences — supply 
at least ten times as much per day s work of one nian as the more 
primitive tools of Smith's time; but it is clear that with these facil- 
ities there can only be work for all. if consumption also increases 
ten-fold. This it can only do if either the wages of the workers 
have their purchasing power ten-fold increased, or the comparatively 
few people to whom the bulk of the purchasing power belongs, con- 
sume the surplus in their turn Rut wages have bv no means in- 
creased to anything like the proportion mentioned, and the number 
of people who obtain the lion's share of the product is too insigni- 
ficant to enable them to consume the surplus, while the resulting 
under-consumption limits their demand for new means of produc- 
tion, which otherwise might prove a profitable investment In con- 
sequence, they buy land and other safe tribute-claims, with the cflfect 
on circulation described in the dealings of Plutus and Jones There 
can only be one result; a reduction in the number of hands employed 
in production. If the waste in distribution, through the unnecessa- 
rily large number of middlemen, the waste through militarism and 
destructive wars, the waste through devil Alcohol, through circum- 
locution offices, through flunkeyism, through strikes and other re- 
strictions in production brought about by the labor unions, failed to 
tap ofif part of our superfluous blood, the social body would long 
ago have been subjected to a stroke of apoplexy. 

Want of employment in our time is not the product of too little, 
but of too much, capital, of a capital too abundant for our existing 
distribution of wealth; and this settles the wage-fund bugbear of 
Adam Smith. It is not more wealth or wealth-creating power we 
want just now, but a more equal distribution of wealth. 

The new monev, by taking out of the way one obstacle in 
this direction, will increase consumption accordingly. The increas- 
ing consumption must necessarily give a freer rein to our productive 
power, and call forth from latency into actual existence immense 
quantities of wealth. This wealth, in its turn, by serving as a 
security for a money credit, supplies its producers with the means 
of changing wealth into purchasing power — into money. There can 
be no danger of producing too much wealth under such conditions: 
where denrand keeps pace with supply, and wdiere accordingly prices 
do not fall, as they new do, through a non-consumption of part of 
the new^ly created wealth — consumption in the sense of use. for, to 
keep the economic machinery moving, it matters not whether the 
product of labor is consumed in the form of bread and meat, or of 



CIRCULATION. I29 

railroad locomotives, canals, and school-houses. Such an under- 
consumption now results from the use made by our rich of their 
incomes, which restricts the market and presses down prices. It 
is different under the new system, for when prices fall, new money 
appears in the market. This is eagerly demanded by those who 
have paid their own money to their rich creditors. The debtor 
class will be able to obtain this new money on reasonable terms, 
because the products of their labor will supply sufficient se- 
curity, through the removal of the danger now presented by a fall 
in prices; and thus the withdrawal of money or credit, by the 
creditor class, will cease to do any harm. Our next chapter will 
show the effect which the changed conditions will have on the in- 
terest rate; how they will reduce the interest tribute paid by the 
producers to the capitalists; and thus prove a potent factor in bring- 
ing about a better distribution of wealth. 

Thus the new money is bound to immensely increase production, 
for which a ready inland market is found through an equally increas- 
ing consumption. This makes us independent of foreign markets, 
so that we can calmly face that great bugbear in the way of paper 
money, the international market. 

What is international trade even now when compared with 
domestic trade? It will play a ridiculously insignificant part when 
the full effects of scientific paper currency are produced in the 
home trade, effects which, as we have seen, must consist in an imi- 
mense increase of production and consumption. There is no coun- 
try in the world whose citizens would not be far better customers 
for its products than any foreign or colonial market, if their pur- 
chasing power were kept at the level of their productive power; and 
yet, instead of tenderly nursing this purchasing power by just laws, 
we use up our strength in the attempt to conquer foreign markets, 
be it even by means of costly wars. If any power, engaged in the 
unjust work of forcing nations — who want to be left alone — to fling 
open their doors to outsiders, would employ the- means thus wasted 
and the human activity thus thrown away, to organize production 
and distribution in its own do-mains, the additional turnover thereby 
obtained would far exceed any sales ever expected in the best for- 
eign market. One single dollar a working day more purchasing 
power given to 30 million American bread-winners would mean an 
additional home consumption of 9 billion dollars a 3^ear, or almost 
six times the total amount of American exports. 

I cannot refrain from quoting Miss Mara De Bernardi, the 
talented daughter of G. B. De Bernardi, the founder of the Ameri- 
can Labor Exchanges, on the folly of looking for foreign markets 
while the demands of our home consumers are unsatisfied: 

"Tramping the highways and byways of the nations, shelterless, 
cold, shivering to-day under the blasts of a premature winter, 
doomed to bleak and comfortless nights beside the grudging fire 
of some discarded railroad tie, or, at best, to- the shelter of some 



130 THK KCONOMIC AND SOCIAL PROBLEM. 

farmer's friendly surplus o-f hay, fruni Maine to California, and from 
Washington to the land of southern Bowers, wanders the countless 
market for America's wood and coal, and lumber and brick and 
stone — the homeless, houseless waif of over-production. A humbled 
petitioner at the kitchen doors of the generous housewives of the 
land, with manhood crushed and dying beneath the awful Jugger- 
naut of beggary, stands the numberless market for America's wheat 
and corn and boundless stores of food — the hunger-haunted victims 
of over-production. In their wretched rags, their cold, pinched 
faces, blue and strained, the tattered children of the land shiveringly 
proffer their claims to Dixie's cotton yield — the ill-clad victims of 
the nation's surplus stores. And they weary the pavements of oiu' 
streets with their endless, aimless passing to and fro, and harass 
the very peace of the nation with their ceaseless importunities for 
the making and taking of the surplus of the world. And sometimes, 
when the struggle for human existence grows too great, some reck- 
less, heartsick victim of too much unused clothes and food and 
shelter in the world, drifts ofY to meet the everlasting bounty and 
abundance of the hereafter, down some 'cy river, or on some out- 
going ocean tide — a market lost to the over-production of the 
world by the crime of that world's own folly and neglect ; a market 
\\liich neither the sacrifice of human liberty nor the shedding of 
human blood was required to conserve, but which only the kindness 
and simple justice of a common humanity would have held inalien- 
able ; a market which could proffer not idle, useless, cruel gold, but 
honest toil for honest toil ; a market which relieves alike the victim 
of over-production and the victim of over-work. -\ market for our 
surplus in China? It is praying for reco'gnition, and dying ot 
neglect, at our nation's very doors." 

We have seen why this market, which prays for recognition at 
our very doors, is closed; and if a scientific paper currency opens 
this door, it matters little what effect this currency might have on 
our international trade. However, I want to show that even in this 
field, it is bound to exercise a favorable influence. 

The larger the turnover, the smaller the percentage (.f business 
expense which has to be added to cost, and consequently tiic cheaper 
the goods can be produced. A factory which only works half 
time runs up nearly the same interest and rent bill as one that 
v.orks day ai^d night with its full force. The office expenses arc 
nearly the same, and running machinery does not deteriorate much 
more, sometimes not as much, as when it lies idle. This ])art of cobt 
of production is spread upon a turnover perhaps four times as large 
in the one case as in the other, and consequently amounts to onl}- 
one-quarter as much under full running time as where only a quar- 
ter of the possible work is done. If, without exportation, only one- 
half of the plant can be kept employed, or the whole plant only 
half the time, it is evident that production for the home market 
would cost a great deal more than where, through exportation, the 



CIRCULATION. 13 ^ 

factory can be kept running at its full capacity. This is the reason 
whv manufacturers often export at prices which would involve a loss, 
if thev were obtained for the whole production, of the mill. They 
calculate that the additional turnover thus obtained helps to bear 
general expenses; or, in other words, expenses, which have to be 
met anyhow by the domestic turnover, may be left out of account m 
the export department; which thus gives a small profit. Often this 
extra profit enables the exporter to pay out of his own pocket the 
foreign import duties to enable him to compete with the foreign 
manufacturer. The pretense that import duties are often paid by 
the foreigner is consequently not so unfounded as free- 
traders make out. I remember from my own personal experience 
as a manufacturer that I reduced my prices for a foreign country to 
the amount of a duty newly imposed by the foreign government so 
that my customers could sell my machines at the old prices. The 
facts here given also account for the cheap prices at which .some of 
our trusts sell abroad ; and it is a fallacy to believe that they could 
always manage to sell at home at the same loiw prices. If the ex- 
ports still leave a small profit, because general expenses are borne by 
the home sales, loss all round might be the result, if home sales were 
also made at a price only justified where general expenses can be 
left out of account, but impossible where they come in. 

The results of currency reform would bring ou a domestic turn- 
over far in excess of the former total sales, home and international 
trade taken together. The saving in cost thus reached would not 
only amply pav for the higher wages— especially when we take into 
consideration 'the greater efficiencv of the better-fed workers, but 
would also permit lower export prices. Exports thus could be made 
in sufficient quantitv to pav for all the imports, in which case it is 
obvious that the currencv system would not interfere m any but a 
beneficial wav with the internatioual trade ol a passive country. If 
gold is sent or received from abroad, it will be as merchandise. In 
fact it is ouly sent or received now in this character. 

But for all that, we have to investigate the possible contingency 
of an unfavorable trade balance, to find out what the paper currency 
will do in such a case. It need not trouble us that the free-trade 
school does not admit the possibility ol such a contingency, on the 
ground that, as the French economist, Jean BaptisteSay, expresses 
ft: "Commodities are always paid for with commodities." It is one 
of those teachings which 'are on a level with Smith's wage-fund 
theory. The siniple fact that England in the course of years accu- 
mulated a credit with other nations of not less than 2.ckx) million 
pounds sterling ($10,000,000,000) proves that England's exports 
have not alwavs been paid for by imports, but that large amounts 
have been left 'on credit in one shape or another; bonds, mortgages, 
bills of exchange, etc., or investments of other kinds, such as land 
purchases, factories, shares and stocks of all kinds. Tine fact that 
•\ustralasia, for instance, owes England nearly 500 million pounds 



132 



THE ECONOMIC AND SOCIAL PROBLEM. 



shows that EngHsh imports have not always been paid for by 
Australasian exports, but partly have remained due at compound 
interest. This is just what will happen to the paper currency coun- 
try in the case of an unfavorable balance. If it has not a credit 
balance abroad, like England, it will run into debt, as all of our 
paper currency countries have done in the past; for such a currency 
never was adopted except as a consequence of debt. A great deal 
of the prejudice against paper money is due to this fact; people not 
considering that the currency did not cause the debt, but, on the 
contrary, the debt created the currency, which, in spite of the im- 
perfect raw method of its issue, usually proved a benefit to the 
country which adopted it. 

We need not feel astonished that the theory of the economists 
again is in flat contradiction to practice, as has been shown in respect 
of the wage-fund theory. These gentlemen try to explain discord- 
ant facts by false theories, without recognizing the disturbing ele- 
ment responsible for the contradiction. Closer study would teach 
them the solution of the problem, but as a rule such study can only 
be made by men acquainted with practical life, not by those whose 
horizon is limited by desk and library. 

In the wage-fund difficulty they might discover that the only 
fund really concerned is the land and money fund. This would 
sooner or later lead them toward the recognition of our land and 
currency errors. They would find that unnatural land moiiopoly 
and the artificial limitation of the money privilege to coins made of 
one or two precious metals, are responsible for the equally unnat- 
ural fettering of productive power. 

In the case of their "commodities-bought-with-commodities" 
theory, closer observation would show that the reason why this 
theory does not conform to facts is due to the advent of another 
factor, which falsifies the account. This factor is Interest. In the 
next chapter we shall recognize the abnormity of this economic fac- 
tor, and how it is entirely the outgrowth of the same pernicious 
economic monsters: private land ownership and money monopoly. 

Our return to nature at once operates an absolute change in 
both cases. The last vestige of any limitation of productive power 
will disappear with land and money reform. The wage-fund bogey 
then will mcrelv survive as a historical reminiscence in the chronicle 
of human follies, and commodities will be really paid for with com- 
modities: for there will be no oth.cr method of payment. Land and 
interest values will be no more obtainable in the market; and money 
of the new kind will be valueless internationally, unless converted 
into commodities. Without interest it matters little to an individual 
or a nation how soon or how late creditors will pay themselves 
through a counter purchase of goods. In fact, the later the better; 
for meanwhile the capital will be used free of charge. 

Under the mie of interest, the case entirely changes. Interest 
and its child, compound-interest, finally swell the original bill to 



CIRCULATION. 133 

such unpleasant proportions that the debtor will too late recognize 
that buying in the cheapest market, according to the great free- 
trade principle, often spells buying in the very dearest market. One 
dollar due at 5% compound interest in one hundred years foots up to 
$140. Was it really cheaper to economize that dollar, at which the 
goods were bought and borrowed cheaper in the foreign market, 
than to make them at home without running up a balance against 
us, especially if in the interval our own workers were without em- 
ployment through the foreigners not buying an equivalent from 
us? This brings the trade problem into a new light, which free- 
traders ought to make use of before they come to positive conclu- 
sions. Admitted that their pet policy is the only one which holds 
water, if examined from the pointview of the fundamental principle ; 
the right of every man to satisfy his wants with the least effort. 
Admitted that from this point of view protection is an anomaly, is 
not interest, too, an anomaly, a negative element? A negative mul- 
tiplied with a negative produces a po'sitive, and a positive multiplied 
with a negative produces a negative. If we apply this rule, learned 
in our school-days, to the point in question, we must come to the 
conclusion that the negative Interest may be changed into a positive 
by the negative Protection, while the positive Freetrade, under the 
influence of the negative Interest, may produce a negative result. 
Under the iron rule of Interest a debt is always a danger, and to 
avoid it, measures may be found prudent, which, under freedom, are 
absolutely harmful. Satisfying wants with the greatest efifort, 
without running into debt, may be found preferable tO' their satis- 
faction with the least efifort, if it implies indebtedness. 

To make this clearer let us substitute the case of individuals for 
that of nations. After all, what is the trade of nations but the trade 
of a number of individuals living in different countries. John, a 
tailor, needs some chairs If he were fully occupied at his trade 
he would act very unwisely in making these chairs himself. He is 
not skilled in such work, and it would demand ten times as much of 
his time as Bill, an experienced cabinetmaker, requires to make far 
better chairs. John would do much better to make a coat, and buy 
chairs out of the proceeds, certain that the same labor time thus 
.spent will buy more chairs than if he spent it on chair construction. 

How would it be, however, if through a too limited demand 
for coats, John were only half employed? Would he not prove a 
better householder if he spent his idle time on chair-making, than if 
he were to buy those commodities on credit or with his savings, 
sitting in his shop, with his hands in his pockets. Now let us spin 
out the story a little farther, and let us assume that Bill, too, is only 
half employed, but sadly needs a coat. Would not Bill, too, do bet- 
ter to make this coat by his own labor in his idle time, no matter how 
long this will take, than to rvm into debt for it, or pay out money 
saved for a rainy day? No doubt the most practical way for both 
would be to use their unemployed time to work for each other. 



134 THE ECOXOMIC A\n S(HIAI. l'R( ir.T.F.M. 

John would make Bill's coat better and in a fraction of the time in 
which Bill could make it, and the same thing would happen in regard 
to Bill's taking John's place as a chair-maker. Certainly both par- 
ties would fare much better by such an exchange; and no doubi 
they would do this, if feasible. But the two do not know each othe- , 
and barter between tliem is out of the question, as it practically is i a 
the greater part of ordinary business affairs. John finds that his 
cheapest way of getting chairs is to buy them at the next furniture 
dealer's, and Bill buys his coat in a department store. Both thes." 
middlemen — for some reason or other — have no use for the labor 
of the two artisans. Let us say they can buy imported goods 
cheaper. Both artisans borrow money from a usurer to buy the 
things they want, or they run up a bill at the store. Woidd it not 
be far more advantageous for John and IHll, if in some way — for in- 
stance, by means of a prohibitive duty — they were prevented from 
buying the cheap imported goods? No matter what the addition to 
the price might be, they would be better off if the goods were made 
locallv, and if they thus obtained employment. What would it mat- 
ter if Bill had to pay $to for a coat which could have been imported 
for $5. and if John gave as much as $10 for the same chairs which 
could have been laid down in the country for $5; when the real 
result was simply that John made a coat in exchange against Bill's 
chairs, and Bill made chairs in payment of John's coat. ( For. sim- 
plicity's sake, I leave out of account the surplus work done by both ' 
parties to pay the middleman's profits.) In this case, the amount at 
which both commodities figured in the nuitual accounts would 
prove absolutely indifferent. Anything was better than to have 
two willing workers sit idle in their shops that they might give em- 
ployment to foreign workers. Under such conditions, even an 
absurd waste of power such as Adam Smith describes in the second 
chapter of Book IV, may prove the lesser of two evils. 

"By means of glasses, hot-beds, and hot-walls, very good grapes 
can be raised in Scotland, and very good wine can be made of them 
at about thirty times the expense for which at least equally good 
wine can be brought from foreign countries. Would it be a reason- 
able law to prohibit the importation of all foreign wines merely to 
encourage the making of claret and Burgundy in Scotland?" 

My answer is: If the foreign wine-producing countries will 
not accept British goods in payment for wine, while Scotch workers, 
in consequence of this refusal to accept the products of their labor 
in payment, cannot find any work to do, it would decidedly be bcMer 
policy to set them digging coal, miaking and laying steam-pipes, 
building and heating hot-houses, therein to raise grapes, than to 
reduce these willing workers to a pauper's state, fed by the produce 
of other workers. The cheapest foreign wine for which we have 
to run into debt, through compound interest, will finally be the 
dearest we ever bought, and workers, who otherwise would have to 
be fed in idleness, can be looked at as workings for nothing-. Those 



CIRCtTLATrON. 135 

who always speak of the consumer who ought to buy in the cheap- 
est market forget that at least 95% of the population are first pro- 
ducers before they can be consumers, and that, therefore, the pro- 
ducer's interest must be nearest to their hearts. Unfortunately, 
those whose position gives them the power of directing the nation's 
policy, arise mostly from the non-producing minority. 

This principle of reciprocity in trade, the great Scotch professor 
treated with contempt.* In Part II, third chapter. Book IV, Adam 
Smith says: "The sneaking arts of underling tradesmen are thus 
erected into political maxims for the conduct of a great empire; for 
it is the most underling tradesmen only who make it a rule to 
employ chiefly their own customers. A great trader purchases his 
goods always where they are cheapest and best, without regard to 
anv little interest of this kind.'' 

It is exactly this policy of the great traders which justifies the 
interference of the state. Let us not forget that we only u^se a 
metaphor when we speak of America, England, or Germany, as 
exporting and importing. In reality, individual American, English 
and German traders export and import, and in doing so they merely 
consult their own personal interest, not that of the nation as a 
whole. An importer does not care which nation proves the best 
customer of his own country, when he gives his orders. He merely 
compares price-lists and qualities, and then orders his goods. In 
fact he can hardly act differently, or competition would swamp him. 

His country's passive trade balances, in consequence of its 
eflfect upon the currency, may be followed by its indebtedness to 
foreign capital, perhaps by national insolvency; but what does he 
care about such trifles, trifles to him, when looked at from the stand- 
point of his profits and losses? Why should he have regard to 
any little interest of this kind?" as Adam Smith expresses it. 

Not to be misunderstood, I must add a short explanation. 
Favorable, active, positive, or unfavorable, passive, negative balances 
of trade do not necessarily correspond with similar financial bal- 
ances. A balance of trade may be active and the financial balance 
passive, as is the case in the United States, and several other coun- 
tries at the present time; and the trade balance may be passive and 
the financial balance very active. England has long shown the 
most prominent example of such a country. Its imports exceed its 
exports considerably; but most of the time the deficit does not reach 
the amount due from other nations on freight, interest, rent and 
profit account; while her colonies, in spite of their recent favorable 
balance sheets, have been running deeper and deeper into debt, 
because the interest debt due to England exceeded the balances of 
trade in their favor. If their balances of trade were passive or if 
their exports just balanced their imports they would increase their 
indebtedness still more; while England would become richer still if 
her balances were active. 

It is the same case with this country, which had passive bal- 



136 Till-: i:c()X()Mic- AXi) SOCIAL pR()r.Li':.\i. 

aiices from the foundation of the Republic to 1873, figuring up to 
a total of $1,193,212,113. This debt, with compound interest, has 
had to be paid by the favorable balances accruing since 1873. 
These balances by this time figure up to six times the total of the 
fornxn" passive balances; but when we take into consideration the 
freights paid to foreign l<^els, the expenses of our tourists in the 
foreign countries, the dowries of our absentee daughters, the savings 
sent abroad (in 1907. $83,890,925 in postal ovders alone), our losses 
on bonds and stocks sold abroad below par, and, more than all these 
items, compound interest, it is not at all astonishing that our debts 
abroad far outweigh our credits, especially if we include in the debts, 
the land mortgages, and bonds held abroad. 

Freetraders, like Louis Post of the "Public," look at our favor- 
able trade balances, at our excess of exports over imports, as a loss 
of wealth. This reminds me of a German humorous saying: "Man 
verpuddcit eine Menge Geld mit dem Schuldenbezahlen" ('a lot of 
money is frittered away in the payment of debts). Now there is 
only one way open for an honest man and an honest country, who do 
not like debts, and that is not to incur them, by refraining from 
buying more goods than they have money or goods to pay with. 
But freetraders of the Post school deny the very possibility of such 
a thing; for they believe in Say's ofd nonsense that "commodities are 
always paid for with commodities." They do not say when this 
pavment is to occur, and forget that if the bill it not settled at once 
it is bound to run up, sometimes so high that there is no possibility 
of paying the mere interest in commodities, let alone the capital. 
And this is just what happened to the United States during many 
years. If it were not for the present favorable trade balances,- the 
debt w^ould rapidly' increase, until bankruptcy some day settled the 
account; a policy which Mr. Post would hardly prefer to payment 
by the favorable balances which he so dislikes. 

P.ut does this excess of experts over imports really take wealth 
out of the country? Or, to ]nit the question more correctly, would 
this wealth have been produced if it had not been designed for 
export? 

Those who have followed me so far that they fully understand 
the predicament of our Twentieth century world, of its production 
painfully halting behind productive power, through an insufficient 
consumption, will easily see that increase of consumption must 
result in new production, which otherwise would not materialize. 
Now, this is practically the cfTect of exportation, which is con- 
sumption by foreigners. Instead of taking the place of home con- 
sumption it practically creates additional home consumption, 
through the new chances of employment, which otherwise would 
not be obtainable.— We owe such extravagances to the law of the 
pendulum, which finds its application in intellectual as well as in 
phvsical oscillations. Our getting away from an error on one side 
often swings us into the error on the other side. To stop in the 



CIRCULATION. 137 

middle seems to be almost beyond human nature. This fact has 
been observed in the wage-fund theory, where those who recognized 
the fallacy of Smith's doctrine went to the other extreme of abso- 
lutely denying the truth which hides behind the error: the limita- 
tion of production through our wretched land and currency systems. 
A specially interesting proof of this is offered by Henry George. 
He saw that with free land, labor can produce all the capital required 
to make full use of the productive power of the country, without 
being limited by any wage-fund. On the other hand, he did not 
recognize the significance of the means of exchange in regard to 
the turn-over, and consequently to production. His argument that 
wages are only paid after their exchange value has been produced 
by the worker, and, therefore, that no wage-fund is required to 
enable us to produce, proves this clearly. Of what use is the stock 
of merchandise to the manufacturer on pay-day if he cannot ob- 
tain customers for it at once, or banks who will loan him money on 
it? As long as all payments, those of wages included, are due' in 
certain quantities of a scarce metal, sO' long shall we have a wage- 
fund, in spite of all the theoreticians in the world. 

It will be different when the exchange banks, described in 
Chapter VH, will change the product into market money, as soon 
as it is finished — and. in consequence of the credit system con- 
nected with exchange banking, even while it is as yet unfinished. 
Then we shall certainly see disappear for ever the last trace of the 
wage-fund theory. 

Another case of pendulum swinging beyond the centre of 
truth,, is supplied by Smith's relation to Mercantilism, an economic 
school which, though born in the previous century, still held sway 
in the great economist's time. If the Mercantilists were at fault in 
overestimating the influence of the precious metals, Adam Smith 
and his followers, our modern freetraders, in the vindication of 
equal rights for all products of labor, without any distinction, swung 
too far to the other side with their mental pendulums, by forgetting 
the exceptional position given by law t© the precious metals. To 
really defeat mercantilism, a thorough currency reform had to be 
the first step. As it is, our whole commercial system, national and 
international, remains steeped in mercantilism. The balance we are 
struggling for in both fields is not the wealth (products of labor) 
balance, but the financial balance. We have not progressed so very 
far, after all, since the time of Colbert, the Mercantilists' great chief. 
Smith justly denied that wealth consists only in money or in gold 
and silver; or at all events that the precious metals represent the 
most precious part of wealth. He saw clearly that we might dis- 
pense with gold and silver more easily than with iron or copper; 
that we might even live without the two precious metals; while we 
cannot exist without food, clothing and shelter. But here his per- 
ception of the real nature of the problem ended. In Book IV, 
Chapter I, he says: "Though goods do not always draw money as 



138 THI-: ECONOMIC AND SOCIAL PROBLEM. 

readily as money draws goods, in the long run they draw it more 
necessarily than even it draws them. (Joods can serve many other 
purposes besides purchasing money, but money can serve no other 
purpose besides purchasing goods. Money therefore necessarily 
runs after goods, but goods do not ahvays or necessarily run after 
money. The man who buys does not always mean to sell again; 
whereas he who sells always means to buy again. The one may 
frequently have done the whole, but the other can never have 
done more than one-half of his business. It is not for its own sake 
that men desire money, but for the sake of what they can purchase 
with it." 

Even a learned scholar cannot be absolutely blind to the facts 
of every-day life, and 1 hardly believe that Smith could have made 
such statements if he had lived a hundred years later. In the 
twentieth century it is easy, even for a university professor, to point 
out the absolute incompatibility of such theories with the facts of 
real life. An inmiense increase of productive power has been the 
signature of the hundred and thirty years that have passed since 
Adam Smith wrote these sentences in his mother's house at Kirk- 
caldy, in the quiet study of the scholar, carefully shut off from any 
intercourse with the outside world. Our folly in making a scarce 
vellow metal our exclusive legal tender money has since then 
brought about a wild chase of goods after money, w'hile the kind of 
investments favored by our rich money owners clearly shows that 
money can do other work besides buying goods. To comprehend 
this, even if Smith had lived in our time, would, however, have pre- 
sented some dif^culty to him. The author of the "Theory of Moral 
Sentiments" would indeed have found it hard to understand the 
motives which can actuate our Rothschilds, Rockefellers, Astors, 
etc., in their accumulations of millions. They can never expect to 
use the money for the purchase of goods, for the greatest imagin- 
able extravagance cannot conceive of such an expenditure. They 
consume only a fraction of their income, and use most of the bal- 
ance to add to their wealth; not in the form of tangible products of 
labor, which would be equivalent to consumption as far as the 
goods-purchasing use of the money goes, but of tribute claims in 
the shape of land titles, mortgages, bonds, etc. — mere cords to which 
the world's money is attached, to be pulled in at the will of the cord- 
holders. Rut whatever the motives may be. the fact remains that 
immense amounts of money or money claims are thus used for 
"other purposes besides purchasing goods." amounts exceeding 
by far the whole money stock of the world. .A.nd the well-known 
consequences of this fact are that everywhere goods of all kinds 
go a-begging in vain for money, while money haughtily refuses to 
buy goods, instead of "running after them," as Smith teaches. 

I have no wish to depreciate the merits of the great Scotch 
thinker, but he undertook here an impossible task; for it is as im- 
possible to do justice to economic subjects without practical busi- 



CTRCULATTON. I39 

ness experience as to bake wheaten bread without any wheat. This 
is the reason also why "Protection and Free Trade," by Henry 
George, though written in his best style, is the poorest of his 
books. Though more than Smith, he had never been, tO' any extent 
worth mentioning, in mercantile business, and experiences, which 
to a business man have become flesh and blood, are to men of this 
kind undigested raw materials or terra incognita. Most interesting 
in this respect is Chapter XIII of George's book, "Confusions 
Arising from the Use of Money," which ought to be styled : con- 
fusions arising from ignoring the part money plays in business. 

Because a man who barters with another strikes the better 
bargain the more value he obtains in return for what he gives, 
George concludes that the more the value of her imports pre- 
ponderates over that of her exports, the richer a nation must be. 
His reasoning, like that of all free traders, is based on the "com- 
modities pay for commodities" fallacy, which assumes cases of 
barter where, in reality, purchase and sale, i. e., money transactions, 
are carried on. Under the money system a nation's imports, like 
an individual's pr.rchases, represent not income but expenditure, 
unless they are obtained as a gift; while exports are sales, and 
represent income instead of expenditure, if th«y are not given 
away gratis. In this way George is kept fromi realizing the great 
difference involved in the use of money. His' error is most apparent 
in the following parable found in the same book. 

"Robinson Crusoe, we will suppose, is still living alone on his 
island. Let us suppose an American protectionist is the first to 
break his solitude with the long-yearned-for music of human speech. 
Crusoe's delight we can well imagine. But now that he has been 
there so long he does not care to leave, the less since his visitor 
tells him that the island, having now been discovered, will often 
be visited by passing ships. Let us suppose that after having heard 
Crusoe's story, seen his island, enjoyed such hospitality as he could 
offer, told him in return of the wonderful changes in • the great 
world, and left him books and papers, our protectionist prepares to 
depart, but before going seeks to offer some kindly warning of . 
the danger Crusoe will be exposed tO' from the 'deluge of cheap 
goods' that passing ships will seek to exchange for fruit and goats. 
Imagine him tO' tell Crusoe just what protectionists tell larger com- 
munities, and to warn him that, unless he takes measures to make 
it difficult to bring these goods ashore, his industry will be entirely 
ruined. Tn fact,' we may imagine the protectionist tO' say, 'so 
cheaply can all the things you require be produced abroad that 
unless you make it hard to land them I do not see how you will 
be able to employ your own industry at all.' 

" 'Will they give me all these things?' Robinson Crusoe would 
naturally exclaim. 'Do you mean that I shall get all these things 
for nothing, and have no work at all to do ? That will suit me ■ 
completely. I shall rest and read and go fishing- for the fun of it. 



140 TlIK ECONOMIC AND SOCIAL PROBLEM. 

I am not anxious to work if without work 1 can get the things I 
want.' 

" 'No, I don't quite mean that,' the protectionist would be 
forced to explain. 'They will not give you such things for nothing. 
They will, of course, want something in return. But they will bring 
you so much, and w-ill take away so little, that your imports will 
vastly exceed your exports, and it will soon be difficult for you to 
find employment for your labor.' 

" 'But I don't want to find employment for my labor,' Crusoe 
would naturally reply. 'I did not spend months in digging out my 
canoe, weeks in tanning and sewing these goat-skins, beeause I 
wanted employment for my labor, but because I wanted the things. 
If I can get what I want with less labor, so much the better, and 
the more I get the less I give in the trade you tell me I am to carry 
on — or, as you phrase it, the more my imports exceed my exports — 
the easier I can live and the richer I will be. I am not afraid of 
being overwhelmed with goods. The more they bring the better it 
will suit me.' 

"And so the two might part, for it is certain that no matter 
how long our protectionist talked, the notion that his industry 
would- be ruined by getting things with less labor than before 
would never frighten Cpjsoe." 

Of course, if it was a question of barter, if the importers took 
from Robinson goods which abounded on his island, and which 
could be supplied by him with much less labor than that entailed 
by the goods which the others gave him in exchange, his astonish- 
ment at the protectionist theories put before him would have been 
justified. Such a trade would have meant full reciprocity; and only 
extreme protectionists can object to free trade under such con- 
ditions. Nor would it have made the least difference what time 
elapsed before the importers took Robinson's produce in payment. 
In fact, the longer they tarried the better for Robinson, who could 
let his W'Calth breed additional wealth in the meantime. But let us 
suppose that it was not a barter transaction, but one of purchase 
and sale for money, and that the strangers' bill was higher than the 
value of the produce which they accepted from Robinson in ex- 
change, so that Robinson had to run into a money debt, and that 
5% interest was demanded for this debt, Robinson giving as security 
a mortgage on his island. And let us further suppose that year after 
year elapsed, and no favorable balance of trade enabled Robinson 
to pay his money debt, his further bills against the importers not 
exceeding the amount of the new bills of goods they sold him, and 
gold not being obtainable on the island. The debt remained, the 
interest on it accumulating all the time, with the frightful velocity 
of compound interest; until one day a sheriff comes along who, as 
Robinson cannot pay his debt, in legal tender money, sells his 
island over his head. As the proceeds are not sufficient to pay for 
the money debt, Robinson not being able to make a bid, because he 



CIRCULATION. I4I 

possessed no legal tender money, all the other belongings of the 
poor man were also sold, and he is set adrift in the world, penni- 
less, unless the new owners of his island consent to retain him as a 
laborer or as their tenant, who has to work hard from morning till 
night to pay his rent and to eke out a meager living. No more im- 
ports are offered now, but most of Robinson's produce is taken 
away for rent. Was it really Robinson's best policy, under such 
conditions, to buy the cheap goods offered to him? Was it not 
better to produce them by his own labor, though applied under 
much more unfavorable conditions, and to refuse the importers' 
goods at any cost so long as he could not pay for them with his 
own produce, but had to run into debt payable in money at com- 
pound interest? Anything was better than to become the interest- 
serf and finally the rent-slave of the strangers. Fair trade, but not 
unconditional free trade, "was the only not right-down suicidal 
policy open to Robinson^ and as his supposititious case corresponds 
with the realities of individual and national trade, the illustration 
proves the very reverse of what was intended. Fair trade is a cer- 
tainty where metal money and its product, the interest-poison, does 
not come mto the way. Where it does, which is everywhere the case 
in our present ,world, however, counterpoison Protection, and even 
Prohibition of importation, may be found a good remedy. 

Let me bring the state of things on Robinson's island still a 
little nearer to the reality of every-day life. Let us suppose that 
Robinson had made a specialty of the raising of foodstuffs and 
the production of raw materials; while an artisan, Jones, who had 
immigrated, produced furniture, cloth, and other manufactures re- 
quired by himself and Robinson. The two exchanged with each 
other, each fixing money prices for his goods which remunerated 
him well for his labor, as they enabled him to obtain all he needed 
of the other's produce. Now an importer lands, and offers all 
goods manufactured by Jones at one-half the price he charges. 
Robinson at once ceases to give his orders to Jones and transfers 
them to the importer; for why should he pay more for his goods 
than he can get them for in the market? Jones, being out of work 
through the loss of Robinson's custom, emigrates. After a little 
time the importer wants his bill paid. Robinson says that he has 
no money, and that his former customer, Jones, always accepted 
produce in payment; he could only settle his bill with produce. 
The importer agrees; but freights are high, and competition in this 
kind of produce in the distant markets is very sharp, which forces 
him to offer one-quarter of the price only which Jones had paid. 
Robinson cannot help himself, as he needs the goods of the im- 
porter, Jones having left; so that he either has to go without goods 
which have become a necessity to him, or has to make them in a 
miuch more primitive way with much more labor. 

He thus finds that he pays twice as many bales of wool, or 
bushels of wheat, as he had to supply to Jones for the same manu^ 



142 THE ECONOMIC AXD SOCIAL PROBLEM. 

factures. He has some bad seasons, and he runs into a money debt 
with the importer, who takes a mortgage on the island, which in- 
creases througli compound interest, until finally the island is sold, 
and Robinson becomes the rack-rented tenant, or (at last) the laborer 
of the new owner. After his death, in some poorhouse. the island 
IS turned into a deer park by the rich proprietor. The protectionist 
thus proved to be in the right, because he looked at the case from 
the point of view of every day's business. Unfortunately for Henry 
(George, the business done by savages and Robinsons is not typical 
of the regular business of civilized life, as George supposes. In 
reality, the business to be expected in the case of Robinson was 
raw barter. In such a case the arguments of Robinson, or rather 
of George, his representative, were correct. The more he obtained 
in barter, and the less he gave in exchange, the better ofT he was 
bound to be. But to look at such a trade as representing the ordi- 
nary business of civilization was a great blunder; for there those 
are best olT who spend least and receive most money, who conse- ■ 
quently pay out less for their purchases (imports) than they obtain 
for their sales (exports). 

This is proved by Portugal's economic history tluring the last 
two centuries, as told by Friedrich List, the great German econo- 
mist, in 'T)as Nationale System der Pohtischen Oekonomie." I 
translate from the fifth chapter of the first book. List's quotations 
from English sources are thus twice translated, so that the text may 
slightly differ from the original, which is not at my disposal: 

"When Count Erceira became Minister of Portugal, in 1681, 
he conceived the plan of erecting woolen factories to work up the 
country's own raw material and to supply the mother country, as 
well as her colonies, with her own manufactures. For this purpose, 
artisans v.ere imported from England, and in consequence of the 
support given them, woolen factories began to flourish so quickly 
that, after three years (1684), the import of foreign woolens could 
be prohibited. From this time forth Portugal supplied herself and 
her colonies with her own manufactures, made from the local raw 
material, and. according to the testimonial of English writers, 
prospered thereby excee(hngly." (BritisJi Merchant. Vol. Ill, p. 69.) 

The success of this measure is the more remarkable because 
the country had shortly before this lost a great quantity of capital 
through the expulsion of the Jews, and in general suffered from 
bad government and a feudal aristocracy which oppressed the liberty 
of the people and agriculture. (Ibid. 76.) 

In the year 1703, however, after the death of Count Erceira, 
the celebrated English Minister, Methuen, succeeded in convincing 
the Portuguese Covernment that Portugal would gain very much 
if England permitted the import of Portuguese wines at a duty 
amoimting to one-third less than that of other nations, for which 
Portugal was to ])crmit the importation of English woolens at the 
duty of 2T)% which existed previous to 1684. Immediately 



CIRCULATION. 143 

after the ratification of this treaty Portugal was inundated with 
EngHsh manufactures, and the consequence of this inundation was 
the sudden and complete ruin of the Portuguese factories, a suc- 
cess similar to that of the later Eden treaty with France, and that 
of the cessation of the Continental system in Germany. 

According to Anderson's testimony. History of Commerce, 
Englishmen were at that time so experienced in the art of de- 
claring their goods under value, that practically they only paid one- 
half of their duties fixed by the tariff. "After the prohibition was 
levied" (says the British Merchant), "we carried away so much of 
their silver, that they kept very little for their necessary occasions. 
Then we went for their gold." (Vol. Ill, p. 267.) 

This business they continued until recent times ; they exported 
the precious metals which the Portuguese received from their col- 
onies and carried a great pile of it to East India and China, where 
they exchanged them against merchandise which they sold on the 
European Continent for raw materials. The yearly importation of 
Portugal from England exceeded the export to the amount of one 
million pounds sterling. This favorable balance of trade forced 
down the rate of exchange to the disadvantage of Portugal, 15%. 
"We gain a more considerable balance of trade from Portugal 
than from any other country" (says the editor of the British Mer- 
chant in his dedicatory memorial to Sir Paul Metheun, son of the 
celebrated Minister). "We have increased our importation of money 
from there to one and a half million pounds sterling, while formerly 
it only amounted to 300,000 pounds." (Vol. Ill, pp. 15, 20, 33, 38, 
110,253,254.) 

The consequence of this drain of Portugal's , precious metals 
and money was the institution of an inconvertible paper money 
which, whatever services it rendered to internal trade, could not pay 
the yearly debt resulting from the annual deficit of the trade bal- 
ance-sheet; and other means of payment had to be found. Then 
began the usual cycle of mortgages on Portuguese land handed 
over to British capitalists; of Portuguese Government bonds emi- 
grating to England; of the dominion of British capital in Portugal — 
capital imported in the shape of woolen goods, for which no wine 
was taken in payment, and accumulating in the usual way through 
compound interest, until one of the richest countries became one 
of the poorest, until national bankruptcy, more or less veiled, had 
to alleviate the intolerable burden. 

Adam Smith, in his hatred of a reciprocity policy, "the sneak- 
ing arts of the underling tradesmen," could see no disadvantage to 
Portugal nor gain to England resulting from these conditons, and it 
is highly interesting to ascertain by what kind of logic such contra- 
dictory facts were made to coincide with the preconceived results 
of deductive reasoning. He thinks that there can be no advantage 
in thus obtaining gold and silver from Portugal, for "the more gold 
we import from one country, the less we must necessarily import 



T44 THE ECONOMIC AND SOCIAL PROBLEM. 

from all others. The effectual demand for gold, like that of any 
other commodity, is in every country limited to a certain quantity. 
If nine-tenths of this quantity are imported from one courttry. there 
remains a tenth only to be imported from all others. The more gold, 
besides, that is annually imported from some particular countries, 
over and above what is requisite for plate and for coin, the more 
must necessarily be exported to some others; and the more that 
most insignificant object of modern policy, the balance of trade, 
appears to be in our favor with some particular countries, the more 
it must necessarily appear to be against us with many others." 
(Book IV, Chap. VI.) 

So many words, so many errors. Certainly Smith could not 
know 130 years ago that, while Portugal became bankrupt, England, 
in the year 1907 would become the world's creditor and capitalist 
to the amount of something like 10 billion dollars, merely through 
lending out her gold and silver, after having received it, or without 
at all receiving it ; by letting the debts accrue which become due to 
her in consequence of her active balance sheets, which were not bal- 
anced by passive ones. He could not know this, nor did he know 
how affairs stood in his own time. He had the courage to write a 
book on political economy, without ever having been in active busi- 
ness life ; without knowing more of it than a student can learn at 
his desk. Henry Thomas Buckle, in his "History "of Civilization in 
England" (Vol. I, p. 249), says: "The 'Wealth of Nations' is 
entirely deductive, since in it Smith generalizes the laws of wealth 
not from the phenomena of wealth, nor from statistical statements, 
but from the phenomena of selfishness, thus making a deductive 
application of one set of mental ]-)rinciples to the whole set of 
economic facts. The illustrations with which his great book abounds 
are no part of the real argument ; they are subsequent to the con- 
ception." However, even a deductive philosopher ought to have 
known that money can be lent out at usury internationally as well 
as nationally, and that there is such a thing as land purchased abroad 
with gold, which land yields rent to its owner, whether that owner 
lives in England or in Portugal ; also that there are really cases of 
generally favorable and of generally unfavorable balances. 

The worst trick in his speculations on international trade was, 
however, played on him by the wonderful discovery he made that 
"the general industry of a society can never exceed what the capital 
of the society can employ." which we had already a chance of 
admiring. Upon this false premise, his whole ideas of trade policy 
have been built up. and it is no wonder that the conclusions thus 
drawn from a false major are absolute nonsense. If it were true- 
that a society could not increase its industry beyond fixed limits. 
it would be quite correct to conclude that the introduction of any 
new industry must correspondingly hamper one already existing. 
and that therefore the industries for which the country is hc^^ 
adapted are preferable to those of a more^exotic nature. No usr. 



CIRCULATION. ' I45 

consequently, to protect any industry, for what cannot maintain 
itself without such artificial methods had better make room for 
what is more congenial to the soil. As I have shown, however, the 
assumed fact does not exist ; there is practically no limit to the 
extension of a society's industry. On the contrary, the more in- 
dustries a nation possesses, the more industries it will have room 
for. If spinning flourishes, weaving succeeds; and if both have 
reached a certain development, the manufacture of spinning and 
weaving machinery will pay, which in its turn gives more work to 
foundries ; these to more iron and coal mines, etc. 

Unfortunately, authority plays a very pernicious part in public 
opinion. Carlyle's "thirty millions, mostly fools," are too much in 
the habit of following some men with great names, like sheep run- 
ning behind their bell-wether, or we should be farther advanced. 
The first work urgently required before a sound building can be 
erected, is to clear out of the way the old ruins. No headway can 
be made, unless the work done by certairi men of renown is valued 
at its real worth, unless we fully recognize in which way these 
theory-mongers have managed to stultify themselves and the trusting 
public, which though it does not understand their reasoning, esti7 
mates their depth by their abstruseness. It is taken in so much 
easier through the mutual support these philosophers give one an- 
other, through the flocking together of these birds of a feather. 

Here, for instance, we have some wonderful theories on our 
present topic, hatched, in support of Smith's nonsense, by David 
Ricardo, a man who, though a speculator at the Exchange, had 
never any practical experience of mercantile business ; which another 
theorist and deductive reasoner, John Stuart Mill, and still others 
of the same guild, are so delighted with, that they pass on the non- 
sense as if it were based on observations of real facts, and not 
merely on pure baseless inventions concocted at the scholar's desk. 
Adam Smith's deductively-found theories about international trade, 
culminating in Jean Baptiste Say's proclamation that "commodities 
arc paid for zvith commodities," so delighted the imaginative Ricardo 
that he set to work to substantiate this assumption, even in the ex- 
treme instance of one country producing everything — without ex- 
ception — cheaper than another country, as. for example, may occur 
in the near future with Japan. If that country, with its low wages, 
continues to progress in industrial development as it has done during 
the last four decades, there may soon be hardly any article which 
cannot be produced more cheaply there than anywhere else in the 
world. 

The obtaining of a favorable balance of trade must therefore 
meet the most serious consideration of statesmen and, anyhow, 
they must look out that their country has favorable financial bal- 
ances, which are as important nationally as they are in the case of 
individuals. I repeat this for the purpose of cutting off shallow 
free-trader jokes like that of merchandise intended for importation, 



146 THE ECONOMIC AND SOCIAL PROBLEM. 

hut burned at sea. ■"lis clcsti;.;ciic)n." they argue, "diminishes im- 
ports, and thus procures a better balance of trade; ergo, according 
to the protectionists, it is better for a counir)- if cargoes of this kind 
are lost tiian if they arrive in safety." 

Certainly in such a case the actual imports are lessened, but 
the financial balance remains the same as if the ship had arrived, for 
the goods have to be paid for if they run at the risk of the importing 
country, and if they do not, other goods will take their place. So far 
as the trade and financial balance is concerned, the lost goods are as 
if they never had left their home port. 

An explanation ma\ Ijc demanded why the international im- 
ports and exports do not balance, as they ought to, where the 
imports of one country are Uie exports of others. Instead of this, 
the impoiis preponderate considerably. The loose wa}- in which 
ex])()rts are booked is mainly responsible for this. Imports arc 
much more reliable, of which the custom houses take care. The 
booking of freight charges forms another item of inexactitude. 

In modern financial balances the expenses of tourists have be- 
come (if an importance they never had before. Some countrie; 
• are almost entirely passive in this line, the United States, fm- 
instance. Others, such as Switzerland and Italy, are almost en- 
tirel}- on ihe active side. Verv few foreigners travel in th.s 
cfmntry. while the monev which its people spend abroad runs 
ir.to large figure-^. S\\-it/erland, on the other side, has a yearl^' 
income of over thirty million dollars from this source. Italy and 
France show up hardly smaller active balances in this department. 

Because I have tried to demolish certain errors which, un- 
fortunately, are usually employed as weapons on the free trade 
side, I have been called a protectionist by some of its partisans. 
They do not reflect what a slap in the face they give their own 
party by such an imputation. It implies that the fallacies I attack 
are indispensable bulwarks of their school. I do not tliink they are. 
I believe that a man may stand up for free trade, if his country, 
according to his opinion, will profit more in the extension of its 
exports than it will lose by the increase of imports through such a 
policy ; that its balance of trade will thus benefit by free trade. 
Another may be a protectionist on the opposite ground ; or because 
he believes that you cannot convert other nations to free trade by 
onesidedly opening your own (.(j!)rs, like England, while the other 
doors are closed ; but rather by closing yours, too, in the expecta- 
tion that diminishing exports will preach them a more eloquent free 
trade, or reci]:)rocity lesson, than the best free trader could sup- 
ply. Disarming in the face of a forest of bristling bayonets has 
never been good policy ; as the experience of history has proved 
often enough. 

Each of two antagonists will have to prove his case by 
arguments based on such facts, for instance, as a custom union 
lietween Britain and her colonies, or middle Europe and Argentine 



CIRCULATION. 147 

against the United States. The exclusion of his wheat and cotton 
from the world's market would soon make the American farmer a 
radical free trader. He never will, as long as the others endure 
American high protection without shooting back. 

This part of the question is so much of a side issue, compared 
with the great problems treated in these pages, that many reformers 
consider it positively harmful to bring in this apple of Eris, so 
likely to divide allies in the main fight. As stated in another place, 
I here find one of the main arguments against the Single-Tax 
method of land restoration. The Single-Tax must abolish customs, 
as there is to be no other tax but that on land values. Thus its 
partisans are bound to stand up for free trade, antagonizing some 
of their best allies in the fight against land monopoly, who happen 
to be protectionists. If I have had to attack balance of trade fallacies 
it was principally because the part played by money in international 
trade can not be understood without an explanation of the way in 
which international balances arise and are settled. 

For all that I do not stand up for protection ; I merely defend it 
against attacks based on general economic principles. It is just as 
impossible to select certain principles of political economy from the 
rest without a disastrous failure as it is to take the best material 
and try to build with it on treacherous ground. If we want to erect a 
dwelling on a quaggy bog, canvas and bark are better building 
materials than granite and oak, and to reject the flimsy stuff under 
such circumstances in favor of the more solid materials on the score 
of general principles of solidity, is just as preposterous as to decide 
for free trade under all circumstances merely because it agrees with 
fundamental economic principles. This would be correct policy only 
where all else is in line with first principles. With free land and 
money free trade fits in harmoniously ; but with monopolized land and 
monopoly money, which form the quaking bog on which our econo- 
mic building is erected, free trade may prove the heavy load under 
which the edifice will sink still more rapidly. Protection, just be- 
cause it is opposed to true economic principles, may be the very 
thing wanted under such conditions. We have no choice in the 
matter ; either we stand up for true principles all round, or we have 
to go on the line of expediency; and if protection is found on this 
line we shall have to advise protection. The decision will then 
have to depend on practical business conditions, usually ignored by 
the theoretician. 

Among these, the question of reciprocity stands in the fore- 
ground. The contempt with which it is treated by the Liberal party 
now in power in England, is due to the great reverence still paid to 
Smith's teachings. England is paying dearly for this blind deference 
to authority. 

The effects of the present commercial depression will make 

this clearer even than it is. How sad to see the hopes of a land 

'reform, to be brought by the Liberals- thrown back for another 



148 THE ECONOMIC AXn SOCIAL PROBLEM. 

decade, tliroug'h the certain victi;r\' of protectionist Toryism! The 
grower of liojis. ruined In free American hups, the Sheffield manu- 
facturer of steel goods, thrown on the pavement by Solingen's over- 
production dumped on the English market at any price ; they and 
their workers are not the men who are accessible to hopes of the 
future based on possible land reforms. The shirt is nearer to the 
body of the unemployed than the coat; the living, or rather starving 
present is more vivid than a distant future. The question of the 
dear or cheap loaf takes the background of how to procure any loaf, 
cheap or dear: the same question which a witty Irishman so tersely 
expressed in these words: "In Old Ireland you can get a bushel of 
potatoes for six-pence, but the difficulty is to i^et the six-pence." 

After we have thus settled the international bugbear, only one 
more international question remains to be answered. Why do we 
find so many paper-currency countries who have made or are making 
all possible efforts to return to a gold currency — Russia. Austria, 
Italy and Argentine, for instance? 

We might reply that a variable paper currency cannot compare 
with a scientific one as here delineated, which keeps up a more 
stable standard of value than gold, and by many the dangers con- 
nected with continual variations of the standard are considered 
greater than those inherent in gold. This applies also to silver coun- 
tries, like India and iVlexico, whose governments try to adopt the 
gold standard. 

\\'e have, however, to seek the main reasons for this state of 
afifairs in the great influence exercised throughout the world by 
the creditor class, which benefits by the appreciation of money and 
in the prevailing ignorance in currency affairs. Who are the men 
whose judgment usually prevails in such matters? 

The statesman ? I do not wish to estimate him as low as Adam 
Smith did when he spoke of him as "that insidious and crafty animal, 
vulgularly called a statesman, or politician, whose councils are di- 
rected by the momentary fluctuations of afifairs." (Book lY. Chapter 
II.) But I nnist agree with Buckle when he expresses his opinion 
of the rulers of a country: "'Such men are at best only the creatures 
of the age. never its creators. Their measures are the result of social 
progress, not the cause of it." ("Hi>t. Civ.," Vol. I. Chapter V.) 

Under party government th.e statesmen arc supposed to repre- 
sent the opinion of their part\ , .-nd in money questions the state of 
things which the historian DouL;Ias found existing in the paper- 
money period of New England, and also in the Erench Revolution, 
still obtains all over the world. "Parties." he said, "were no longer 
Whigs and Tories, but creditors and debtors." 

The bankers and financiers? My personal experience of this 
class — of whom during seven years of banking experience I have 
known quite a number, some of them being near relations — has 
taught me that these very bankers and financiers are of all men 
in the world least capable of pronouncing a correct judgment on 



CAPITAL, CAPITALISM AND INTEREST. I49 

the great currency problem. They cannot see the forest for the trees ; 
besides being- too deeply interested in the lumber business. If we 
are so entirely at sea in the currency business, if we have not yet 
been able to reach a safe harbor, it is because our ship is trying to 
Steer its dangerous course between the Scylla of the scholar or the 
currency crank, who are all theory and no practice, and the 
Charybdis of the financier who is all practice and no theory, who 
has no more the power to get out of his groove than Bismarck's dog. 
mentioned in the last chapter. The combination of theory and 
practice, of the study of monetary science with practical work in 
financial business is unfortunately rarely found, or we should be 
further advanced in the position to be adopted in regard to one of 
the most momentous factors in the great social problem : Cir- 
culation. 



. • CHAPTER V. 

CAPITAL. CAPITALISM AND INTEREST. 

The meaning of "Capitalism" can only be understood when we reverse the 
general definition of the relationship httween Capital and Interest, when we see 
in Interest the father, in Capital the progeny. 

WHAT is capital? Economists are at loggerheads when asked to 
define this important factor of their science, and their defini- 
tions mostly differ from what is popularly understood by the word. 
So, for instance, may we hear every day: Brown has invested his cap- 
ital in land. If this means that Brown has bought and spread manure, 
made fences, dug a ditch for irrigation purposes, or laid drains to 
desiccate the land, it agrees with the most general definition given by 
our economists; for Brown is using wealth (product of labor) for 
the production of wealth. But this is not at all what is usually 
understood when we speak of investments in land. If we say Brown 
has invested his capital in land, we generally mean that he has 
bought land which henceforth is his capital. The rental income from 
this land becomes now the interest of Brown's capital, and the sharp 
division which most economists make between land and capital, 
between rent and interest, is blurred together. Other economists, by 
adopting a definition still more in accordance with the popular con- 
ception, escape this dilemma, but fall into another. While defining as 
capital anything which produces an income, and thus ceasing to 
make a distinction between the products of man's labor and land — 
the substance and surface of our globe, the Divine Creator's gift to 
all men — they also include under the heading of capital, human 
talents and skill, such as a good voice, or the gift of acting, drawing, 
<:omposing, the skill of the artisan, as well as the knowledge of the 
professor. In this they keep in touch with the popular meaning, for 
we all know how often we have heard such expressions as "Patti's 



150 THE ECONOMIC AXO SOCIAI, PROBLEM. 

voice is her principal capital." or "the most valuable capital possessed 
bv Rubinstein was his wonderful art." Unfortunately, here again 
we find two conceptions thrown together which to keep apart is even 
more important than the distinction between land and products of 
labor, i.e, wealth ; no separation is made between capital and labor, 
between interest and wages. I purposely do not say profit and 
wages, as my business here is only with the interest component 
of profits. Wages of organization and supervision, the other com- 
ponent, fall under wages ; and what remains, besides rent, is risk 
premium, lottery gains, amply compensated by losses, as we have 
seen in the previous chapter ; or the tribute levied by monopoly, 
which a fundamental social reform will see disappear with its 
source. I say this with a full knowledge of Marx's famous "Mehr- 
werth" (surplus value) theory, which finds the origin of profit in 
the power of the employer owning the means of production to exact 
unpaid w'orking time. A remarkable discovery consisting In the not 
only worthless but absolutely nonsensical substitution of a time profit 
to a product cr money profit! At all events neither time nor product 
could ever have been exacted on free soil under free exchange. 1 
hope I need not explain that any income received by a person from 
his work falls under the category of w'ages, whether he works on 
his own account or for another individual who pays him a fixed or 
variable amount, whether it is physical or intellectual work, whether 
it is done by the carpenter's hands or the dancing master's feet, the 
throat of the singer, the resisting powers of the professional faster's 
organism, or the thinker's brain. 

As it seems impossible to give a generally recognized definition 
of Capital in the same way in which we can define what is meant 
by a horse, a chair, or a house, we must formulate a definition which 
is useful and at the same time fairly compatible with popular mean- 
ing. I consequently define Capital as property ivhich can procure 
an income zvithont any work on the part of its ourner. 

This definition comes also nearest to the etymological derivation 
of the word from kcphalaion, caput, the head, the principal, as dis- 
tinguished from the expected interest or usury, the unessential. In 
this sense Patti's larnyx is not capital, as it cannot be used to produce 
an income without her own work, nor is the skill of a worker of any 
kind his capital ; whereas land is capital, as it produces an income 
without the work of its owner. 

T now proceed to give my reasons for considering this definition 
more useful than that mostly adopted, and often called the orthodox 
one. 

I. The orthodox definition cannot serve any practical purpose 
whatever, for it regards as capital any kind of wealth used for re- 
productive purposes, and thus creates — not a category of definite 
objects — but one of temporary and changing uses. There is not a 
single kind of wealth which could not be simple wealth at one 
moment and capital the next. The piano in my drawing-room, until 



CAPITAL, CAPITALISM AND INTEREST. I5I 

how used only for my pleasure, was simple wealth in the morning, 
but became capital the moment I gave my first paid music lesson on 
it in the afternoon. Bread bought for my table is wealth, but 
changes into capital with my change of mind which destines it to 
serve as provision in a fishing expedition. My horse was wealth as 
long as I used him merely to take my daily exercise on his back, but 
has been capital since I hired him out for money. On the other 
hand, even a machine may change into simple wealth from having 
been capital if it is presented to a museum. Of what practical use 
can it possibly be to create a special division of wealth with such 
flowing boundary lines? 

2. The orthodox definition is not only useless, but positively 
dangerous, because, instead of bringing light into an important 
problem, it merely makes matters more confused. 

When an orator or writer has to reply to a socialist's attack 
upon capital as the oppressor of labor, he points to what orthodox 
economy calls capital, and speaks of our wonderful progress due to 
this capital, i.e., to our improved means of production and distribu- 
tion; whereas his antagonist thinks of Government bonds, of land 
monopoly, of mining rights, of all kinds of tribute-claims selling at 
the stock exchange for certain amounts, and not at all falling under 
the orthodox definition of capital, though representing that capital 
which people principally have in view when they use the term. It is 
here that precision is of the utmost importance. It can by itself pro^- 
duce neither good nor harm whether we call a horse capital or mere 
wealth; the animal will not pull one ounce more weight, nor will 
a violin change its quality, whether it is wealth because we only use 
it for our amusement, or whether it changes into capital when we 
play on it for pay in an orchestra. But it is of great consequence to 
waive aside with a Podsnapian gesture the dangerous tribute-claims 
as not being capital, fixing our hostile gaze exclusively on the most 
harmless and even useful objects in the world — the means of pro- 
duction. We can better understand the fatal effect which such a 
classification must exercise upon an exact recognition of the social 
problem since we have realized in Chapters I and IV that the means 
of production would be far more abundant, and would be freely at 
the disposal of labor, were it not for that other kind of capital ignored 
by the panegyrist of the tool capital. We have recognized how this 
tribute capital is the greatest obstacle to the production of wealth 
by impeding exchange and consequently production through a re- 
duction of the available money and the credit vehicles. 

My own definition makes no distinction between the chair on 
which I take a rest and the same chair when I sit on it to write 
something by which I gain my daily bread, but it excludes the 
means of production where they are at the free disposal of honest 
and solvent workers, and includes them where they are used as an 
instrument of exploitation. The substitution of the steam-plow for 
the crooked stick with which the savage tickles the soil, is certainly 



152 .THE FXONOMTC AXD SdCIAI. I'KO C. [.KM . 

very beneficial ; but paramount for the masses of workers is the ques- 
tion: Who owns the plow? We certainly can produce more with 
the steam-plow than with the stick, but the stick was owned by the 
savage, together with the soil cultivated by it, while the steam-plow 
and the land on which it works, belong to an exploiter. Some clear- 
headed men — Ruskin and Leo Tolstoy, for instance — have come 
to the conclusion that the advantage is not so unquestionably with 
the steam plow as many economists pretend; and that the question 
of ownership, of the free use of the means of production deserves 
as much consideration as that of their perfection. 

3. My definition of capital alone legitimates its derivation : 
Capitalisui, i.e., the reign of capital as a means of exploitation. The 
increasing amount of machinery required for modern production, 
by itself cannot create and constitute capitalism ; for even the 
socialistic state would not renounce technic progress. In fact, .social- 
ists expect from freedom a much more extensive use of machinery 
in the arts of production than has ever been reached under the system 
of exploitation. 

We shall presently see that the productivity of machinery is not 
the cause of that main instrument of exploitation called Interest, 
that if it were not for the possibility of investing savings in land 
purchases and in a legal tender money made from certain scarce 
metals, capitalists would be glad to lend out their surplus free in 
the shape of machinery, or any other means of production to any- 
body supplying the work of preservation. That the owners of ma- 
chinery can levy a tribute from labor, independent of their pay for 
the work of organization and supervision, is not a cause, but an 
effect of interest. The interest represented by tribute-claims based 
on monopoly of some sort is the father of the interest demanded 
and paid for the means of production produced by labor. If the root 
were destroyed, the tree would disappear. This root — the world's 
tribute-claims based on monopoly — once out of the way. through the 
withdrawal of the monopoly base, the workers would soon be the 
free owners of the means of production, and meanwhile would use 
all such means free of cost, which would eliminate them from the 
capital category of my definition. Untrammeled productive power 
would create new means of production to an extent hardly realizable 
by a generation living under the influence of the overproduction 
bugbear. In other words, the destruction of capital, as here defined, 
would, to an incredible extent, multiply capital in the orthodox 
economist's sense. Capital, correctly understood, is thus the arch 
enemy of wealth-creation, and not its friend. The socialist is right 
when he curses it as the worst enemy of labor. With the disappear- 
ance of monopoly, capital will vanish and wealth alone remain. 
This wealth, w-hether used for consumption or for productive pur- 
poses, will be deprived of all tribute-levying power. 

Though half of the wealth now figuring in our tables of 
national wealth will thus be destroyed, we shall be richer than ever 



CAPITAL, CAPITALISM AND INTEREST. 153 

before, because, when this branch of our so-called wealth which con- 
sists of tribute-claims, tabled according to their selling value, and 
which practically is an obstacle of wealth-production is out of the 
way, production will come up to productivity and our real national 
wealth will increase immeasurably. The vanished value of the land 
and mines, exclusive of improvements, the right of way of railroads, 
river crossings, telegraphs, telephones, trams, gas pipes, lighting 
and power wires, etc., Vv'ill be more than replaced by the value of 
new land improvements, houses, railroads, telegraphs, etc., whose 
profuser creation this disappearance of monopoly will have rendered 
possible. 

We have seen how one of the roots of the tribute-levying power, 
whose market value forms capital in its correct economic and popular 
sense, how rent retires from the capital-breeding business through 
land nationalization. We have now to show how Interest, that other 
prolific root of tribute-capital, also dies with the great reform, pro- 
vided it is followed by the change in our currency laws proposed in 
Chapter III. 

The taking of usury has been condemned by the ethical and 
often by the statutory laws of various nations, and only since a 
comparatively recent period, that of Elizabeth, has the term usury 
been confined to the taking of exorbitant increase, while the new 
term "interest" has been substituted for what before was called 
"moderate usury." So at least we are informed bv R. G. Sillar, the 
indefatigable enemy of interest, who tells us that "when the first 
usury law was passed, it was necessary to coin a word for legal 
usury, and we find the word 'interest' was first used in a public 
document in 1623, in the Act of James I. It was most likely used 
privately before this, for Shylock says : 'My bargains and my well- 
won thrift, which he calls "interest," ' and he apparently says this 
with a sneer." 

All attacks upon interest were ineffective as long as the root of 
the poisonous vegetation was not touched. Finally the man of science 
tried to justify what was universally practiced. Only in this way 
can we explain the defence of interest set up by political economists : 
threadbare sophistries of so flimsy a fabric that custom and prejudice 
alone prevent every observer from seeing through them. An un- 
tutored savage would laugh at such teachings, or would think their 
exponents possessed by evil spirits. Try to make him understand, 
when he borrows one of his neighbor's horses which the other does 
not need, but only keeps in reserve for an emergency, that his feed- 
ing of the horse is not a full equivalent for the loan, provided the 
use the animal is put to does not decrease its value. Try to make 
him see the possibility of a claim amounting to two horses after a 
certain number of years, both as young and good as the original 
horse was when he borrowed it, and that a time may arrive when, 
though the borrowed horse long since went the way of all flesh, the 
debt to his neighbor or his heirs shall have grown to the extent of 



154 THE ECONOMIC AND SOCIAL PkOBLEAf. 

more horses than are possessed by the whole tribe. A mere savage 
will never succeed in seeing the possibility, not to say the justice, of 
such a claim ; it needs a civilized man to understand the effect of 
compound interest, and an economist or jurist to defend the prin- 
ciple. And now let us see how these gentlemen go about it. 

Prominent among their theories is that which ascribes to capital 
a certain inherent prodtictk'ity, which is let with the capital, and is 
refunded to the lender in the shape of interest. The term "capital" 
is here used in the orthodox sense of "means of production." but 
excepting land, which produces rent, there is no means of produc- 
tion which will bring forth anything without being used by labor. 
This, by itself, would not invalidate a claim made for capital of 
part of the surplus which has been realized by its help ; part of the 
surplus, for unless labor gets at least some of it, labor would have no 
advantage to use capital. How much of this surplus will have to 
go to the capitalist and how much to the worker, under free con- 
ditions, depends on supply and demand. A well-known example 
used by Bastiat in defence of interest represents capital by a plane 
and work by a carpenter. If there were only an insufficient number 
of planes in the world, not sufficient to supply the demand, Bastiat 
would be correct in maintaining that as a carpenter can produce 
more planed boards with the plane than he can with a more primitive 
tool, he would find it to his advantage to borrow the plane, though 
he had to give to the lender some of the surplus product due to the 
use of this tool. In Chapter IV., I have shown, however, that the 
production of tools would always outrun the demand if no artificial 
obstacles were in the way. In this case the supply of planes would 
be more than plentiful ; plane-owners would have a larger stock of 
planes to lend or sell than tliere are cabinet-makers and carpenters 
willing to use them. Keeping these planes in stock would simply 
mean the gradual loss of the capital; for mould, rust, fire, inunda- 
tions, earthquakes, war, robbery of any kind, cost of storage and 
cleaning, are all elements of depreciation; and at any time a new in- 
vention may make old patterns unsalable altogether, or salable only 
at a reduced price. Thus it might happen that the plane-owner would 
do better in letting out the plane free of cost, provided the carpenter 
agreed, under a sufficient guarantee for the hilfillmcnt of the 
agreement, to replace the plane after a certain time by another worth 
as much as the borrowed plane was at the time of lending. Even 
if, instead of paying interest, the worker demanded a certain per- 
centage of the service rendered by him to the plane-owner, the latter 
might find it to his advantage to strike the bargain. This proves 
simply that the interest claim is not due to the productivity of capital 
but to supply and demand. Unfortunately, there are artificial ob- 
stacles in the way which prevent the unlimited supplv of capital, and 
I shall presently show that interest takes an important place among 
these obstacles. We shall see that interest is partly responsible for the 
unnatural conditions which to-day put a bridle on the productivity of 



CAPITAL, CAPITALISM AND INTEREST. 155 

capital in the hands of labor; while the productivity of capital, when 
unfettered, kills interest, which does not exactly indicate any parental 
relationship between the two powers. Stranger still than the at- 
tempt to trace such relationship are the errors of those economists ' 
who consider the element of time the father of interest. In conse- 
quence of time's creative powers. As far as the products of human 
labor are concerned, the work of time is of a destructive, not of a 
creative nature. Unless new labor is continually applied, all products 
tend to lose in value. Even where they are relatively indestructible — 
as gold or platinum, for instance — they mugt be guarded if the 
owner wants to conserve them ; and guarding is labor, while stor- ■ 
age means rent besides. Exceptions, such as the ripening of crops, 
the growth of trees, and the increase, through breeding, of domestic 
animals, are only apparent, and are caused by omitting the analysis 
of all the economic factors at work. In the first place, the addi- 
tional value is due to the labor employed. Then we have the use; 
of land, represented by rent in our calculations. If we also have 
to add interest, it is because interest is elsewhere obtainable for the 
capital thus invested, and consequently must be added to the price. 
If. this capital were obtainable free of interest, the cost of timber,- 
of crops and cattle, of old wine and brandy (mentioned specially' 
because their higher price, due to age. has been given as a proof 
of the interest-creating force of time), or any other product, 
would not exceed the cost of labor and rent. In selling, profit 
may be added besides, but interest forms no part of it, unless in- 
terest has to be paid for the capital employed, in which case its 
addition to the price is an effect, and not a cause. 

There are also economists who miake use of the element of 
time in another sense, in that of putting a higher value on the 
present than on the future possession of an object. They are not 
so wise as the well-known boy who, when told that the early bird 
catches the worm, replied: "So much the worse for the worm; why 
did it get up so soon?" He perceived both sides of the question,, 
the bird's and the worm's side ; but those gentlemen cannot see that, 
though the present use of something may be more valuable to one 
party than its future possession, the very reverse may be the case 
for another. For the hungry man a piece of meat to-day is worth 
more than one ready for him a week hence ; but by the man with 
more meat on hand than he can eat within a fortnight, the taste 
of another's fresh meat will certainly be preferred to the haut gotif 
of his own after a week has gone round. Whether the service ren- 
dered to him by the other party, who supplies him with fresh meat 
a week hence in exchange for the meat borrowed to-day, will be 
as great, greater or less in value than the service rendered by him 
to the hungry man who might have starved if he could not have 
gotten the meat at once, is not to be gauged by the individual esti- 
mation of such value, but by the assessment which the market 
makes on the basis of supply and demand. The wanderer who 



T56 THE F.rO^JOMTC AND SOCTAt. PROBLEM. 

lost his way and reaches a baker's shop in a starving^ condition may 
be willinj^ to give all his wealth for the piece of bread he buys, 
rather than miss it ; but for all that he will have to pav only one 
single penny, because the market does not consider the accidental 
personal feelings of certain parties, but the g:eneral conditions of 
supply and demand. If our meat owner were the only party whom 
the hungry, meatless man could apply to. the case might be different ; 
but if there are plenty of others who have more meat than they 
want, and to whom a service is rendered by. gfiving; them fresh meat 
a week hence for the meat of to-day, the mutual value of the services 
may not only be equal, but less meat may be demanded in return at 
a later period than has been given ; for even half-a-pound of fresh 
meat is better than ten pounds of spoiled food. 

In fact, this case does not differ from that where the ready plane 
and one made after a certain period were in consideration. The dif- 
ferent deg^ree of perishableness of both merchandise is of no import- 
ance; nor is that of their utility for production. A starving car- 
penter is as much hampered in production as one without a plane. If 
I thought it worth while to discuss it separately, it was because some 
most intelligent men have not been able to get out of this special 
dilemma — Professor Roehm-Rawerk. for instance. 

Also the source of Interest looked for in the traders' profit only 
leads to the element of time. Economically no difference can be 
found between the time spent by the merchant's bark between two 
ports or that spent by the grain of wheat between seeding and har- 
vest. 

The habit of seeing interest paid in the transactions of daily 
life has so confused economists that they cannot lift their ideas from 
this rut, and cannot gain a free outlook. This happened also to 
Henry George. He could not see how a tailor would not invariably 
sell a coat cheaper for cash rather than accept for it a note payable 
ten years later. The fact that, under present conditions, the cash 
received at once can be invested at interest, entirely hid from him 
the possibility that where such investment can not be made, and 
where any saver has to be content if he can invest his savings in- 
terest free, without being required to pay for the cost of preserving 
his capital, some good responsible customer agreeing to pay after 
a number of years, at a time when the money is needed, might be 
preferable to one who pays at once. Though T was not successful 
in making my friend see the case in this light. I had the satisfaction 
to hear him state publicly in the Manhattan Single Tax Club, New 
York — where one of our discussions took place in April, 1893 — 
that if I were right in asserting that interest would disappear with 
private rent, all he could say was : — "So much the better." With 
these words he justified my attack made in "Rent. Interest and 
Wages." against his theory evolved in "Progress and Poverty" : that 
wages and interest rise and fall together, so that it is to the worker's 
benefit if interest is high. 



CAPITAL, CAPITALISM AND INTEREST. 1 5/ 

The same force of habit is responsible for another claim often 
brought out and just as false : the claim that interest is the reward 
of abstemiousness and that its disappearance would stop saving. 
We need not enter into the question once touched by the great 
socialist leader, Lasalle ; we need not inquire whose abstemiousness 
is meant, that of the capitalist or of those whom he exploits ; whether 
the interest paid in this world of ours is not produced by the absten- 
tion of the interest-payers. Nor need we waste time in admiring 
the abstemiousness of our Rothschilds, Carnegies, Astors, Vander- 
bilts, and other interest-lords ; but it might be worth our while to 
look a little into the second part of the wonderful thesis, the preten- 
sion that capital production will stop if no more interest is obtainable. 

It practically means that thinking and civilized man does not 
possess even the provident spirit of many animals, such as the bee, 
the ant, the squirrel, a number of birds, etc., who save for bad times 
and find the reward of their abstemiousness in its product, in the 
accumulated stock, on which they live at the time when production 
has to stop temporarily. Could the bee reason, it would deem itself 
very happy in finding all the honey it has gathered undiminished at 
the time when it is required for apiarian consumption ; the idea to 
stop saving, because no automatic increase of the store can be ex- 
pected, would certainly never enter its insect head. It needs the 
brains of a professional economist to breed such an idea. Take, for 
instance, the following from the writings of Th. Mithoff, professor 
at the University of Gottingen : "If he (the capitalist) did not cede 
the use of his capital to another, he would be able to use it himself 
for the purposes of production or consumption. In temporarily re- 
nouncing, therefore, the use of capital in favor of others, he makes 
a sacrifice for which an equivalent interest is due to him. Doing 
away with interest would cause a great part of the capital now lent 
out for productive purposes to lie idle or to be used for consumptive 
purposes; and the growing difficulty of a paying use for capital 
must very soon reduce the future creation of capital. But as the 
prosperity and the progressive development of economic life depend 
on the use of capital in production — doing away with the compen- 
sation for the use of capital in the shape of a part of the undertaker's 
income and of interest would result in a deep and permanent retro- 
gression of the economic development." 

So many sentences, so many errors. 

To begin with, capitalists only lend out their capital when they 
cannot put it to better use for the purposes of production in their 
own business. There is a limit to such use. The capacity of super- 
vising industrial or commercial undertakings is limited even in the 
case of the creator of the capital, and generally much more so with 
his heirs. There cannot be the least doubt that if the descendants 
of Astor and Rothschild had to use their capital in business exclu- 
sively, and could not invest in land, bonds and similar securities, 
they would be ruined, as was the case with the descendants 



158 THE ECONOMIC AND SOCIAL PROBLEM. 

of our great merchants of centuries ago, whose funds were left in 
business. If our multimillionaires had to invest their wealth in 
this fashion, the opinion we often hear announced — that the big 
fortunes disperse as quickly as they were gained — might be jus- 
tified. The heirs of capable business men are often destitute of 
those qualities which made their progenitors great ; and misman- 
agement, as well as subdivision among the heirs, would soon dis- 
pose of the ancestral accumulations. 

Unfortunately, rent and interest on certain investments of a 
different nature have the double efifect of not only securing a good 
income without any risk for the capital, but also of increasing the 
sum total of the capital much faster than the average number of 
heirs can diminish it, especially at the well-known low rate of fam- 
ily propagation of the rich. Facts have proved this. Each of the 
present Astors, Rothschilds, Vanderbilts, etc.. is richer than was the 
founder of the family's fortunes — through the mere accumulative 
power of interest and rent. 

In my first book, "Auf friedlichem Wege," which appeared in 
1884, long before trusts, Standard Oil and the railroad combines 
created multi-millionaires, I drew attention to the fearful danger 
which Interest was preparing for us in the quiet, almost unobserved 
accumulations it creates. What is New York's unearned incre- 
ment, enriching the Astors ; what is railroad monopoly, which built 
up the Vanderbilts, Harrimans, Morgans ; what is the control of 
nature's resources, the root of the Rockefeller, Carnegie and Gug- 
genheim fortunes, compared with the silent power of Interest, the 
creator of the Rothschilds? In the book above mentioned I esti- 
mated their fortune at one thousand million dollars. Since then, 
through the mere force of interest compounding, the thousand 
millions have more than doubled, have perhaps trebled. Standard 
Oil may be dissolved, railroads nationalized, the trusts broken up, 
but the quiet power which is behind the continuous growth of the 
Rothschilds and other excrescenses of the same nature, which in- 
creases their immense accumulations to unbelievable dimensions, 
with the impetus of a force of nature and the certainty of mathe- 
matics, will subsist. Interest will continue to do its destructive 
work until we sap its foundations. 

The proverb, "three generations from shirtsleeves to shirt- 
sleeves," has been deprived of its .soothing power by well secured 
compound-interest. 

VVe have already seen how pernicious such accumulations have 
proved to our economic development, and how the very reverse of 
our professor's expectations as to the blessings we owe to interest 
has been verified by the facts of real life. 

But not only a productive use in their own business is impossi- 
ble for our greatest capitalists ; even self-consumption becomes al- 
most infeasible. Balls costing half a million dollars, weddings swal- 
lowing $400,000 in 15 minutes, of which $125,000 are paid for 



CAPITAL, CAPITALISM AND INTEREST. 1 50 

church decorations; what, in comparison is the cost of Lucullus' or 
Crassus' revels reported in the annals of Rome's worst times ? And 
yet, what are such extravagances when compared with the incomes 
of the parties ? They marvel at the bath of Vanderbilt costing a 
million dollars; but the gentleman might buy a million bath every 
month without consuming his income. I leave entirely aside the 
usual moral drawn from such prodigalities in a world in which 
millions of persons have not enough to fence them from hunger and 
cold, for the worst is that our millionaires are not extravagant 
enough. If they consumed their incomes, the world would be better 
off. It is just because they save a great part of their revenues that 
the workers cannot find employment. It is because they have not 
enough appetite that others have to go without a meal. If they 
could wear thousands of suits at a time, thousands of poor toilers 
would be able to buy some clothing. If every penny of their money 
were wasted in palace building, the poor would be able to procure 
slum dwellings. It is just to their saving and mvesting their savings 
at compound interest, in connection with our land and currency 
systems — that we owe most of our misery, as I have already shown. 
That this is being recognized more widely is evinced by the fol- 
lowing remarks of John T. Gibson in the Indianapolis News: 

"A few minutes' thought will convince anyone that the indus- 
trious man who lives up to his income, and saves nothing, is at 
least as large a factor in the accumulation of capital as the man who 
saves. Suppose, for instance, that we would all start in to-morrow 
and narrow down our expenses to the last notch, 'cut off everything 
except oatmeal gruel, and make it thin at that,' with the idea of 
saving ourselves rich, how long would it be before we should find 
that, instead of being on the highroad to greater wealth and higher 
civilization, we should be on the back track to poverty and bar- 
barism ? There would be no demand for anything except oatmeal, 
and as no one could sell anything else that he happened to possess, 
he could n6t acquire the wherewith to buy oatmeal, and would have 
to produce it himself, or steal it, or starve. There would be no 
trade ; no use for all our fine business blocks, nor for the railroads, 
nor steamboats, nor factories, nor any of the arts of civilization. 
The labor-saving principle of the division of labor could not be 
utilized except on the smallest scale in co-operative oatmeal produc- 
tion. Altogether we should be in a very bad way — a good deal 
worse off than the Indians were, for they had elbow-room and a 
game-preserve at their back." 

If the rich spent their incomes, consumption of such immense 
amounts would give employment to millions who now are without 
work, and these millions could save, could gradually become owners 
of their own means of production, or could improve those now in 
their possession, and thus bring about a great increase of the present 
general production. Instead of this, we have seen how the invest- 
ments of the rich, restrict the access to natural opportunities, reduce 



l6o THE ECONOMIC AND SOCIAL PROBLEM. 

the circulation of credit money, restrict the credit l:»uilding^ in which 
our commerce is carried on, and thus prevent production from keep- 
ing abreast of productive power. We cannot produce unless wc con- 
sume ; and the masses are bereft of their full purchasing power 
through the rent and interest tributes they have to pay to the rich, 
either directly, or indirectly by means of the tax-gatherer or the 
employer ; while the rich, instead of consuming their share, invest 
it in the purchase of more well secured tribute-claims, the only pay- 
ing investment in the long run ; as new production is a losing busi- 
ness where there is not a corresponding consumption. 

Thus it is not astonishing that the country which boasts of the 
greatest number of millionaires, which estimates its national wealth 
for 1907 at no billions, must also boast of harboring the greatest 
misery in its cities. I am not going to indulge in statistics without 
an official census background. For instance, those of Charles 
Spahr. in "The present distribution of Wealth in the United States" 
(1900), in which the population is divided into four classes. The 
first consists of 125.000 families, one per cent, of the population, 
with an aggregate wealth of $32,880,000,000. or over one-half of 
the total national wealth of 1890, so that the remaining 99 per cent, 
of the population ow^n less than these one per cent. Fifty per cent, 
owai nothing at all. Seven-eighths of the population possess only 
one-eighth of the national wealth. Or R. A. Dague in the "For- 
ward Movement Herald," of Los Angeles, according to whom the 
producers' share in the national wealth, from 62^ per cent, in 1850 
has gradually gone down, from year to year, until in 1900 it reached 
10 per cent., while the non-producers' share has risen from 373^ 
per cent, to 90 per cent. Or Senator La Folette's estimate that all 
lines of industry of the country now are virtually controlled by 76 
men. 

It is impossible to say how much truth there is in these sta- 
tistics ; for, unfortunately, though figures do not lie. liars write 
figures. This country does not possess the basis for any estimate of 
the distribution of wealth, such as the income and inheritance taxes, 
which produce valuable European statistics in this field. Yet 
these very European statistics prove to us that our American statis- 
ticians cannot be so very far from the truth, especially as with our 
greater facility of locomotion we are marching towards the abyss 
at a much livelier tempo than the rest of the world. Highly re- 
spected English statisticians, for instance, such as Leone Levy and 
Baxter, figure that the share of the English workers in 1867 
amounted to 40 per cent, of the national wealth, while estimates of 
t886 gave them only 20 per cent., with a probable decrease since 
then. 

Certainly any of the above statistics come nearer the truth than 
the estimate of our Director of the Census. Mr. S. N. D. North, iti 
his letter to me of July 5. 1907. in which he >ays : "The relative pro- 



CAPITAL, CAPITALISM AND INTEREST. l6l 

portion of wealth in the hands of a few cannot be, if any, greater 
than in 1850, or in the days of George Washington." We do not 
need statistical- tables to recognize the enormity of the error con- 
tained in the above sentence, which will cause surprise wherever it 
is read. A look around us with open eyes proves sufficiently that 
one may be a Director of the Census and still have far less insight 
into" the relations of the actual world than any poor laborer on the 
street. ^ 

I shall go on with my analysis of Professor Mithoff's lucubra- 
tions, asking the reader's pardon in thus seemingly wasting time ; 
but, unfortunately. Professor IMithoff is not the only one who believes 
that demon Interest is in reality a beneficent Ceres, out of whose 
cornucopia the incentive to all wealth-producing industry is poured 
over humanity. The alternative given by the learned gentleman in 
the words "to lie idle" cannot pass either without a few words. I 
wonder how the way in which this capital would lie idle presented 
itself to his mind. He can hardly have been so ndif as to imagine 
that the rich would or even could put in a stock of gold or coins ; 
for he probably knew that the whole gold stock of the world does 
not exceed five billion dollars, and that the savings of the rich in 
the United States alone outrun this amount more than ten-fold. 
And even supposing that there were gold enough to be got for the 
purpose, the supply of the useless stuff would keep millions busy 
whose consumption and savings would fertilize industry in all other 
departments of production. Even under this impossible supposi- 
tion, the wealth accumulations of the rich would do more good than 
they are doing under the dominion of interest. 

If not in the vaults, hov/ then are the savings to lie idle? 

Does the learned gentleman suppose that the savings are re- 
ceived in the shape of products of some sort? Were this so, the 
rich owners of these products would have to pay for their storage, 
and for the work required to keep the goods from deterioration. 
They would soon find that the best shape in which they could store 
their wealth would be in means of production of some sort, which 
the workers could utilize, and thus make self-sustaining. This cer- 
tainly would not mean lying idle. 

Nor could investments in land be meant, because they would 
bring a rental income, which means interest on the purchase capital ; 
which cannot be called lying idle. Besides, the money paid for land 
as well as that spent for the other things, goes 10 somebody and thus 
circulates — does not remain idle. 

The greatest error of, all we find displayed in our professor's 
statements is the pretension that the absence of interest would result 
in "a retrogression of the economic development." That the very 
contrary is the case is clearly perceived by Turgot, one of France's 
greatest financial authorities and economists, in his famous ^neta- 
phor: 



l62 THE ECONOMIC AND SOCIAL PROBLEM. 

"The rate of interest* may be looked at as a kind of level below 
which all work, all culture, all industry, all trade ceases. Tt is like a 
sea spread over a vast country: the mountain tops rise over the 
waters, and form fertile and cultivated islands. As the sea level 
sinks, th.e declivities of the mountains, then the j)lains and valleys, 
appear, covering themselves with produce of all kinds. It is suffi- 
eicnt for the water to rise or fall one foot to inundate extensive 
shores, or to render them back to culture. It is the superabun- 
dance of capital which enlivens enterprise, and the low rate of 
interest is at the same time the efifect and the mark of the super- 
abundance of capital." 

The most superficial glance around us will show how Turgot's 
beautiful picture corresponds with reality. Thousands of useful 
enterprises everywhere, certain to benefit humanity at large, to 
increase its comforts, to cause a further advance of civilization, to 
raise the productivity of labor many fold — enterprises which would 
graduallv i)ay back the outlay they caused, remain in the state of 
wortldess projects, for the simple reason that a certain rate of 
interest cannot be got out of the capital invested. The I^anama 
Canal would have been finished long ago, a tunnel v^ould connect 
England and Ireland — perhaps also America and Asia — innumer- 
able railways and canals would evolve from the state of visionary 
schemes into accompHshed realities. Distant mountain-lakes and 
streams would quench the thirst of large cities now satisfied with 
impurer supplies; mountains over which the stage coach now 
winds its tedious way would be tunnelled; valleys would be spanned 
by viaducts; and rivers — which now are crossed in primitive fashion 
— by bridges. The whole face of the world would soon present 
an aspect difYering in its progressiveness as much from the world 
we know as this is in advance of that remembered by our great- 
grandfathers. What is in the way? Why have we to leave all 
this work undone? Can we ncjt spare the lab(ir? Can we not pro- 
duce the machinery required, the raw materials needed? In a time 
whose chronic coni])laint is known under the names of over-pro- 
duction, want of employment and markets, conmiercial depression, 
such an answer can certainly not be accounted satisfactory. All 
know that no greater boon could be offered to millions than the 
opportunitv of setting to work their ]jroductive power for the ac- 
complishment of these and greater jmblic works. Xo danger eitluM" 
of not finding food, clothing, shelter enough for the millions of 
Workers needed to do the work. There is no department of pro- 
duction in which we could not multi])ly the output if there were 
a paving demand. In fact, nothing stands in the way except one 
seemingly insuperable obstacle: Interest. The projectors may fur- 
nish ever so convincing a proof that the income from the improve- 

* Of course, this means gross interest, the interest actually (laid Iiy the 
producer. We shall yet see that a low net interest is often accompanied 
by a very high gross interest. 



CAPITAL, CAPITALISM AND INTEREST. l6 



O 



ment will sooner or later repay the cost, besides keeping up re- 
pairs; as long as they cannot also prove that a certain rate of in- 
terest can be' depended on for the capital invested, they will preach 
to deaf ears. 

With the disappearance of interest, these and thpusands of 
other great works can be carried out within a comparatively short 
time. Innumerable inventions will come forth to diminish the 
amount of labor required; and they will no more be fought by trades 
unions, justly frightened over the prospect of a still greater scarcity 
of employment for their members. The field of work will then 
grow with working facilities. There is not a department of pro- 
duction and distribution where the disappearance of interest would 
not afifect wonders. What — even if he has the capital — makes the 
manufacturer build a shed lasting only a few years, where a stone 
or concrete building would outlast generations, besides affording 
better conditions of health for the workers? Interest. The stone 
house would be cheaper in the end if it were not for the additional 
interest it costs, which figures up higher than the waste caused 
by the periodical repair or replacement of the shed. It is 'interest 
which prevents the manufacturer or merchant from keeping more 
stock than is absolutely necessary, and thus precludes a more per- 
fect division of work; as, for instance, in weaving, which demands 
continually 'expensive changes of patterns on the looms, where 
working for a certain length of time on the same pattern will 
cause a too great accumulation of stock, and thus a too great in- 
terest loss. It is interest which may some day be mainly instru- 
mental in vanquishing nations dependent on others for their food 
stufifs, because the fear of interest loss prevents them from storing 
enough cereals to last over more than a very short period. We 
have means to fight moisture, rats, mice and other vermin, and 
good conditions may preserve grain for many years; but we can- 
not protect it against the destructive effects of interest, which in- 
creases its cost with every passing day; so that, finally, it does not 
pay to keep stock, at any price, as long as we cannot destroy in- 
terest. 

The disappearance of interest will take out of the way the 
greatest obstacle to money reform, a reform which in its turn is 
one of the most powerful weapons against the interest fiend. Noth- 
ing restricts more the quantity of money which can be kept in cir- 
culation, or of free deposits in the banks, than the fear of losing 
interest — as we express ourselves when w& either have to pay in- 
terest or miss a chance of obtaining it from others. From the poor 
wage-worker who carries at once to the savings bank every penny 
he does not absolutely require, that he may get interest, to the rich 
man who limits his ready money or bank account to his necessities, 
investing the balance as fast as he can to obtain interest — we wit- 
ness a continuous restriction of the money stock held on hand. The 
disappearance of interest would entirely change all this, would 



164 THE ]".C():vOMlC AXn SnCTAT. PROBLEM. 

lari^cly increase the money j>luck which could be kept in circula- 
lion or in tlie banks as a security for depositors. 

Tlu' l)eneticial efifect ])roduced by tlie disap])earance of interest 
would be felt everywhere, cve]i in (|uarters wliere nobody would 
look for it at first siji;ht. W lio would think that it could be the 
most ])owerful means of introduciuii' universal free trade, by making 
free trade what its defenders su])pose it to be, but what, as I have 
shown, it is not by any means: fair trade? It will not ])revent the 
payment of imports with debt certificates, but it will withdraw the 
self-multii)lyin<.': power from this debt, which now often makes the 
cheapest market the dearest in the end. Debt, as has been said in 
the previous chapter, will then simply mean deferred payment by 
exportation. The delay, instead of causing- loss, will only benefit 
the debtors who enjoy the free use of the capital in the interim. 

These will be the results of interest's exit from this world of 
ours, not those foretold by the blind bookworm of Gottingen Uni- 
versitv, and others of his ilk. The simplest calculation should have 
shown him the stupidity of his prognostics, should have taught him 
that, in'stead of stimulating, interest in reality tends to diminish 
saving and consequently production. 

If a man wants to retire on a yearly income of $500, he will 
save $ I coco if he can count on 5% interest, unless he buys a life 
annuity for even less money. The lower the rate of interest the 
more will he have to save, and if interest is unobtainable altogether 
he will have to save capital enough to last him for the balance of 
his life. He may have to go to an insurance company and pay in 
the sum corresponding to the average of years which statistics allow 
him. plus cost of administration. The calculation is much simplified 
by the absence of interest. If he wants to insure a certain capital 
to his familv after his death, he wdl have to pay the yearly pre- 
mium which corresponds -to the sum, divided by the average num- 
ber of years he is expected to live, according to statistics, plus a 
trifle for cost of administration. In either case he will have to 
save more than would be recjuisite in our days, where the interest 
obtained b\- the company enables it to be content with smaller pay- 
ments. If a life annuity, to date from a certain age, or from in- 
validism, is desired, enough has to be i^aid in to correspond to the 
annuity multiplied by the nirnber of years during which statistics 
promise him the enjoyment of t'le annuity, plus cost of administra- 
tion. Whether he pays the money in by yearly instalments while 
he is still working, or in. one lump sum, will then make no dififer- 
ence, as interest no more enters into the calculation. At any rate, 
he will have to save much more for such a purpose than he would 
m our interest-paying world. Supposing he wants to retire at the 
age of fifty years, and to insure an annuity of $500 to his family, 
from then or his previous death up to the death of the last survivor. 
Let us say the number of years during which the annuity has to be 
paid is estimated as forty, the man will have to save something 



CAPITAL, CAPITALISM AXD INTEREST. 165 

over $20,000, or at least double the amount he would need under 
present conditions. And even then he will have saved only for 
the living generation;, if he wanted to commit the folly of saving 
also for unborn descendants, his accumulations would have to grow 
correspondingly, instead of needing only an insignificant increase 
under the interest regime. Thus much more would, be saved than in 
our time, and such savings would become what our present savings 
are wrongly supposed to be: blessings, instead of the curses they 
really are through their restricting efifect on consumption and con- 
seqtiently on production. They would increase our means of pro^ 
duction and communication, as well as all amenities of life. They 
would help to raise the general income and welfare. Until the saver 
consumes his economies they would take productive form, bene- 
fiting his fellow-men; and the world, as well, as he, would be better 
of¥ than if he had consumed at once what he produced. More 
would have to be saved to live without work, but very much more 
could easily be saved in a world freed from the hampering effects 
of interest and the part played by its accumulations. 

We have seen how the creation of generations of do-nothings 
is by far the smallest evil resulting from such accumulations, but 
that the constantly increasing obstacles they oppose to the main- 
tenance of* production at the level of productive power are the very 
roots of the social problem of our time. 

So far, I have only shown what interest is not. I have proved 
that it is neither the product of capital, the child of the element of 
time, nor the just reward of abstinence. I have made clear that, 
instead of stimulating production, it keeps it back. For all that, I 
have not yet shown its real nature and parentage. This we have 
now to elucidate. 

Interest is a tribute due by one set of men to another. That 
this is its nature, that it is a tribute and not a product, is made 
clear by the simple fact that all men could as little live on their in- 
terest income as all could live by burgling or by taking in each 
others' washing. This striking illustration is due to Mr. L. H. 
Berens. Somebody has to pay interest, or others could not live 
by it. That interest is a tribute, and not a natural product of capi- 
tal, time, or anything else, can also be demonstrated by simple 
arithmetical proofs. 

Proudhon says in "Qu'est-ce que c'est la Propriete": 'Tf men, 
united in equality, gave to one of their number the exclusive right 
of property, and if this single proprietor placed with humanity a 
sum of TOO francs at compound interest, repayable to his successors 
of the twenty-fourth generation after the lapse of 600 years — this 
sum of 100 francs would, if invested at 5 per cent., amount to the 
sum of 107,854,010,777,600 francs, a sum 2,696 times as large as 
the capital of France, estimated at 4,000 millions (this was written 
60 years ago), or 20 times as large as the value of the whole globe 
with all movable and unmovable wealth. . . . The Fourierists. 



l66 THK ECONOMIC AND SOCIAL PROBLEM. 

those irreconcilable enemies of equality, the partisans of which they 
look at as sharks, promise to satisfy all demands of capital, of work, 
and of talent in quadrupling production. ♦P>ut even if they quad- 
rupled production, if they mcreased it ten-fold, hundred-fold, prop- 
erty (he means land and capital with their rent and interest claims, 
and it is to this property to which he refers in his famous: "la 
propriete c'est le vol," or property is theft) by its power of accumula- 
tion and capitalization verv soon would swallow products, capital, 
the earth and even the workers." 

We know the old tale of the inventor of chess asking as his 
only reward that the Shah would give him a single grain of corn, 
which was to be put on the first square of the chess-board, and to 
be doubled on each successive square; which, to the surprise of the 
king, produced an amount larger than the treasures of his whole 
kingdom could buy. It is this kind of chess-game which capital is 
continually playing with labor. All exertions, all improvements in 
the mctlTods and tools of labor, the strictest economy, the severest 
self-denial, are all powerless to compete with the rapidity of self- 
increase possessed by capital placed at compound interest, and they 
cannot keep up with its demands. 

AN ALLEGORY. , 

Ages had gone by since sinful man was driven from Paradise. 
The curse (not unmixed with blessings — like all punishment coming 
from such a source), which forced man to earn his bread by the 
sweat of his brow, had weighed upon the race with a heavy pres- 
sure. The crime had been severely punished; mercy began to pre- 
vail. A loving angel was sent down by the (ireat Master, charged 
with the task of lightening the burden. The angel's name was 
Spirit of Invention. He began his work by teaching man to make 
useful tools out of stone, wood, metal, and other formerly worthless 
raw materials. He taught him to tame animals to work for him ; and 
finally he made him master of the elements, pressing them into his 
service. The mountain stream rushing down to the ocean was 
forced to turn wheels, and to grind the flour needed for bread, or 
to saw the logs with which houses- were built, or furniture made. 
The wind, the merry son of the air, had to stoop to the same work, 
where water power was not available. The curse was lightened, but 
not taken oiT; man's wants had increased with the facility of satis- 
fving them, and work was as hard as ever. But the hour had come 
when full mercy was to be granted to the children of Eve. Fire 
offered its service. The most powerful of the elements, though it 
had condescended hitherto to furnish some comforts to man, as 
often had proved his deadly enemy. It would have wrought him 
even more harm if a family feud it had with water had not enabled 
man to make use of the mutual hate of the two to fight one with 
the other. Now the time had come when the unrelenting antagon- 
ism between them was to be used as a means of taking ofT the ter- 



CAPITAL, CAPITALISM AND INTEREST. 167 

rible weight of physical labor pressing upon mankind. The deadly 
foes were imprisoned together in bonds of iron and steel. A fearful 
struggle began. Water, maddened by the mighty embrace of its 
enemy, foaming with rage till it turned into steam, tried all its 
power to break loose from the iron bonds and to kill the fiery ele- 
ment. The* angel taught man how to use the terrible power so 
engendered — to turn wheels, and to do all the heaviest work. 
Millions of iron giants were in this way pressed into his service, 
working for him night and day. Far down in the depths of the 
earth they moved their powerful arms to free the mine from destruc- 
tive waters, and to lift the treasures of the deep. 

Imprisoned in iron cars, they moved these with a speed ex- 
ceeding that of the fleetest deer; drawing heavier weights than 
could the strongest elephants, or hundreds of horses. Pent up 
in ships, they drove them forth through the waters faster, though 
heavily loaded, than the best oarsman ever impelled his light craft. 
But this was not all. 

The angel Spirit of Im'ention again waved his magical wand 
and millions of iron and steel goblins came forth skilled in all kinds 
of work; spinning, weaving, knitting, sawing, grinding, printing, 
sewing, shoemaking, etc., etc. They were practised in all trades, 
and their delicate fingers went to work with lightning speed when 
the iron steam giants were put behind to force them on. 

It seem.ed that at last the golden era had come of which men 
had dreamed for ages past, without ever hoping to attain it. With- 
out trouble, with almost no exertion, except that of supervision, 
man had it in his power to produce boundless w-ealth for the sat- 
isfaction of wants which, in former times, even the richest did not 
know or dream of. All the luxuries that art and refinement could 
invent were at the disposal of the poorest, if free scope was given 
to the wonderful giants and goblins, the number of which daily 
increased in never ending varieties. 

It seemed, I say. that the golden time had come; but it had 
not come. That envious spirit, that fallen angel, Satan, who once 
before, in the shape of the serpent, had driven man from Paradise 
by seducing him to sin, from the first moment had watched the 
work of the beneficent angel with continually increasing disgust 
and anger. He knew very well that, if the plans of the Holy One 
succeeded, Satan's empire would be over for ever. Once freed 
from the cares and troubles of the struggle for existence and the 
battle of life, man would turn to higher aims the powers God had 
given him. Art, science, and ethics would celebrate their greatest 
triumphs; more and more would man break loose from the fetters 
in which his higher spiritual being was held imprisoned by earthly 
cares, and, getting into nearer contact with the eternal source from 
which all spiritual life is emanating, would accomplish the great 
purpose for which he was created. 

The state of things looked desperate. All was lost if some 



l68 THE ECONOMIC AND SOCIAL PRonLE^t. 

stop could not be put to the work of God's angel; but what was 
Satan to do? As he looked over the dark army of vices, sins, and 
follies which had done him such splendid service in past time, to 
see whether any one of his great warriors could take up the fight 
with the angel, he perceived nothing but dejected faces. They all 
knew that they were powerless to battle with the heavenly messen- 
ger. He despaired as he looked at that once valiant and victorious 
army; when, among the follies of man, he observed one little imp, 
who, instead of the despondent, mournful aspect all the others 
were wearing, looked at him in a self-conscious manner which at- 
tracted his attention. 

"What is the matter with you, Interest?" he asked the saucy 
imp. "You don't seem to be so dejected as your comrades are?" 

"Why should I be dejected, master?" replied the spirit. "Am 
I not one of your favorite soldiers? Haven't I always been vic- 
torious under your august guidance? Why should I be less certain 
of victory now than I ever was before?" 

"Alas!" answered Satan sadly, "you do not know the power of 
the enemy we are fighting now. You are no match for the Spirit 
of Invention^ 

"Well, there will be no harm in seeing about that," answered 
the inip. "Suppose you allow me to try a duel with the fellovv??" 

"You little imp! Fight the powerful angel who is defeating 
all mv army?" laughed Satan. 

"Yes, I alone; provided, of course, you allow my son. Com- 
pound Interest, to help me." 

"Are you crazv? You, with your weak little arms, want to 
throttle that immense army of powerful giants, and that mcire 
numerous one of wary goblins, who have filled the world by the 
command of the mighty angel whose brains conceived them?"" 

"I intend to do more than this, your majesty. I shall make 
them turn traitors to their duty. Instead of their being a source 
of blessing to mankind, I shall make them the producej-s of untold 
misery — worse than ever man suffered from thy hands. I shall 
make man curse them and the angel who sent them. He shall be 
made to consider them as the source of all his misery, and to use 
his best powers to fetter them and to keep them from their work 
by all kinds of repressive laws. He shall sigh for the good old 
times when machines did not yet take away the work from poor 
humanity!" 

"You will do all this?" asked Satan, with an unbelieving smile. 

"Yes, and a good deal more, if you let me have my way," 
answered the imp, full of self-confidence. 

And Satan did let him have his way. The battle of giants 
began. Yes, it was a battle of giants, and yet only a game — a fight 
of titans, and yet only a noiseless sport in which the imp was the 
victor. 



CAPITAL, CAPITALISM AND INTEREST. l6g 

Angel spirit of Invciition at first only laughed qii'te heartily 
when he saw the being who came to fight him. 

"Do you see those immense armies obeying my commands?" 
asked he. "Well, I have only to open the gates of my skull, and 
iust as mam' more will come forward to fight you, poor little imp. 
You had better return to the master who sent you, and tell him 
that his empire is ended for ever, even if he lets loose all the soldiers 
of hell he conmiands." 

"There is no need for his doing that," calmly replied the imp. 
"I alone, together with my son. Compound Interest, whom you 
see peering from my pocket, can multiply our number to exceed 
any amount of iron and steel chaps from your empire. Look here, 
m.y friend; before we begin the fight, let us first muster our forces; 
and to end this business in a peaceful way, I will make you a 
proposal. Look at this chess-board. It seems just like any other 
chess-board, with sixty-four squares, but it has the peculiar quality 
of extending the dimensions of the squares, so as always to be larg;e 
enough to accommodate all the soldiers we shall place upon them. 
Now, listen well to what I propose. I enter the first square with 
my son, and you match one of your warriors against us. We enter 
the second square doubled in number; you send two more war- 
riors — and so on every succeeding square. We agree that we 
shall never more than double, and we further agree that when we 
arrive at the last scjuare, and you have a single soldier left after 
, occupying the same, wc shall declare ourselves vanquished, and 
Satan with all his troops will leave this world for ever. If I win, 
\ou and your army are to be at the commands of my master. Are 
you agreed?" 

"Am I agreed!" laughed the angel, as he glanced over the 
untold millions of his soldiers. "Why, certainly, my friend. You 
had better send word to your master to pack his luggage as quick 
as he can." 

"All right, we shall see!" said the imp, in calm, business-hke 
tones. And so the ominous game began. 

In the beginning the angel laughed, for, though twenty squares 
were passed, no noticeable diminution of his forces was perceptible. 
Demon Interest said nothing, but attended to business, quietly 
doubling his army on every succeeding sc[uare. At the thirtieth 
square the angel ceased to laugh, and a few squares farther on he 
had to open the gateways of his fertile brains as wide' as he could, 
urgirig on his new troops with all his might. Only one field more, 
and he had tO' stop' exhausted. He saw he was lost. 

"I despised you, little fellow," he sighed despairingly, "and I 
am punished for my vanity. I see there is no use fighting against 
you. Demon Interest is more powerful than the Spirit of Inven- 
tion. I am your slave. Command your servant!" 

"I am only the servant of my great master," dryly replied the 
demon. "Here I see him coming. He will give you his orders." 



I/O THE ECONOMIC AND SOCIAL PROBLEM. 

And Satan gave his orders. He commanded that the angel 
was to continue in his work with all his troo]is, which were to be 
increased with all possible exertion, so that humanity — which did 
not know the nature of the antagonist it had to fight against — 
would always keep in fresh hope of final success when the new 
troops were forthcoming. But as fast as they appeared, Demon 
Interest was to send forth a larger army to capture the new forces, 
to enslave them, and — instead of their benefiting man — make them 
increase the slave-chains which weigh him clown. 

It was a devilish thought, as could rise only in such a head. 
Just what gave man new hope had to be the means of deepening 
his misery. What to every human eye appeared an unmixed bless- 
ing proved to be the incompYehensible source of greater need. 
Satan had been victorious far beyond his expectations, for the 
consequences of the battle of life under such conditions — poverty, 
ignorance, crime, vice, and hopeless miserx — appeared more in evi- 
dence from day to day, and there was no ho])e of reform, because 
the wise men of the world proved the impossibility of indubitable 
facts, reasoning that blessings could not produce misery. 

I foresee the answer, that all this only shows compound interest 
wrong, that it does not prove anything against interest proper; but 
an objection of this kind can hardly be maintained after one mo- 
ment's reflection. What is compound interest? Is it anything else 
than the income from the investment of earnings of capital? In 
wi^at way does the lending out of $ioo paid to me as interest upon 
$2,000 (lifYer from the lending of the original capital? If one is 
legitimate, the other is; if one is wrong, both must be wrong. This 
objection would not hold for a minute, and therefore the mathe- 
matical proof is furnished that in the long run labor and nature 
can never produce enough wealth to pay interest at current rates. 

Jonathan Duncan, in "The Principles of Money Demonstrated, 
and Bullionist Fallacies Refuted," came to the same results 60 years 
ago from another point of view, when he contrasts the increase of 
claims through interest and the increase of money in which the 
claims are due: 

"Neither is it just to charge metallic interest on the loan of 
metallic money, since the metal cannot sufficiently increase, and 
therefore the interest can never be paid in kind. It must be com- 
muted into labor, or the produce of labor, and infallibly leads to 
slavery." 

Before I continue this quotation I have to intercalate, that 
when Duncan wrote this he did not recognize the fact, yet visible 
onlv in its embryonic state, that in an increasing measure the 
claims are not "commuted into labor, or the produce of labor;" 
that money is insisted upon, though this money practically does 
not exist, a fact responsible for something worse than slavery: the 
disdainful refusal of the slavery services, the denial of the daily 
bread for which thev are ofifered. 



CAPItAL, CAPITALISM AND INTEREST. I7I 

I 

"Suppose, for example, that England, at the present day, 
possessed the precious metals in coin to the amount of 28 millions, 
and having no paper money, were to require, as she does, increase 
on all loans of money at the rate of 5 per cent., every man who 
had borrowed £100 ought, at the end of the year, to be possessed 
of £105 in coin, or he cannot pay his debt with increase. One 
hundred thousand such men, having borrowed 10 millions of 
pounds, ought, at the end of the first year, to be in possession of 
half a million more, and in twenty years, not reckoning compound 
interest, their debt, with interest, could not be paid with less than 
20 millions of pounds sterling. Now, where are these additional 
10 millions to be found? Not in England, certainly — nor abroad, 
for all other nations take increase too, and their wants are in pro- 
portion to their capital. These men, therefore, go on for twenty 
\ears paying capital, by which time the whole of the money which 
they borrowed has been returned to their creditors; but the prin- 
cipal debt has not been paid, and now cannot be; they are insol- 
vent to that amount.'' 

It is related that Napoleon Bonaparte, when shown an interest 
table, said, after some reflection: "The deadly facts herein revealed 
lead me to wonder that this monster Interest has not devoured the 
whole human race.'' It would have done so long ago if bank- 
ruptcy and revolution had not been counter-poisons. 

Counter-poisons, of which only the second one is available, if 
no fundamental social reform kills demon Interest. What enabled 
the world to stand the game so long? The destruction of the debt 
through the insolvency of the debtor no more suffices; since land 
values and government bonds have provided securities of such 
extension, and reliability that the bankruptcy of the single debtor 
avails little, so long as others who need the land and who can be 
forced to pay rent and taxes take the bankrupt's place. Only na- 
tional bankruptcy, to the extent of a revolution that destroys vested 
rights, can help ; and this help is approaching with rapid steps, with 
every year's further addition to the accumulated interest account, 
to the billions which are not consumed by their owners nor offered 
in the market for the creation of new means of production, but are 
spent in the purchase of new land values, bonds and similar tribute- 
claims, each of which increases the already unbearable load on the 
people's backs. 

Nothing can save us from this inevitable goal, which ap- 
proaches with the infallibility of mathematical progression with 
the next doubling of the capitalistic chess-board, nothing but a 
destruction of the source of Interest, which we now proceed to find. 
Even here we are not on untrodden paths. So long as almost four 
centuries ago the great reformer, Calvin, answered the arguments 
of Aristotle, who thought the taking of interest unjustifiable, be- 
cause money put aside cannot produce money, by saying: 

"It is undoubted that money does not produce money; but 



1/2 YH1-: 1".{()X()MIC AND S()( lAL T1^0^U.F.^^. 

with money land is l)ought, which ])ro(hices more than the returns 
for the labor apphed to it, anfl whicli gives a surplus income to the 
proprietor, after all expenses for wages and other things have been 
met. With money a house can be bought, bringing a rent income. 
Objects with which things can be bought, producing incomes by 
themselves, can certainly be consiflered as bringing incomes them- 
selves." 

. If I have $ioo worth of goods of any description, with which 
I can purchase a piece of land, bringing $5 worth of rental income, 
I should certainly be foolish if I lent this $100 in money, or goods 
of any kind to anybody unless he paid me at least $5 a year for 
the privilege of getting- the use of my capital during that time. 

Through making- land an object of commerce, like boots and 
shoes, like watches and houses, we have given it a merchandise 
value; and rent has become the interest on the market price of 
land. Rent by itself is no tribute in the sense of an extortion; 
but an addition to labor's product due to the ownership of land. It 
becomes an extortion only where this ownership is usurped by in- 
dividuals, not where it belongs to the community; where the yield 
goes into private pockets, instead of into the common purse. One 
wrong leads to others. Through allowing monopolists to usurp 
the common inheritance, through making the property of humanity 
an object of commerce, a merchandise, the income which this mer- 
chandise produces, has infected all other articles of commerce, all 
kinds of merchandise; for if the interest income from land values 
is not a tribute, but an inherent property of one merchandise, why 
should it not be that of all others for which land can be bought? 
Thus rent, through appearing in the shape of interest on land 
values, became the mother and justificator of interest on all other 
market values. 

Not the only parent, though, for so long as we make one or 
two scarce products the sole legal tender, the monopolizers of these 
products can exact a tribute for their loan; and interest, with all 
its consequences, will continue to exist, in spite of corhmon land 
ownership, as I have shown happening on Robinson's island in 
the first chapter. This also is not a new discovery; in fact, many 
of the enemies of interest have recognized that an imelastie money 
is the father of interest. The trouble only has been that reformers 
were usuallv satisfied with the finding of one parent, never sup- 
posing that there might be two of them, tho.ugh such is the order 
of Nature. However, the parents are near relations; and this con- 
Sfinguinitv may be responsible for the monstrosity of their oflfspring. 
The joint family name is Monopoly. 

We have vet to take into consideration the difference existing 
between gross interest and interest proper, /. r., between the interest 
actuallv paid and that quota of it which remains after the risk-pre- 
mium and wages of supervision are deducted, a very important 
difference. 



■CAPITAL, CAPITALISM AND INTEREST. ' I7.3 

For the producer and trader it matters very little at what rate 
bankers can get money upon good collaterals, but very much what he 
•himself has to pay for it without such securities. A-nd, strange as it 
sounds, the lower the rate at which the bank lends money upon 
good securities, the higher the rate often is which the producer and 
trader without collaterals will be forced to disburse. It may happen 
that when the rate of interest paid at the stock exchange is almost . 
at zero, the ordinary producer and trader cannot obtain money on 
any terms, while wages are lowest. This paradox is easily solved. 

We must keep in mind that wholesale business is usually not 
done with real money, but by means of credit; and wherever prices 
are falling, through the sluggishness of the m.arket, credit is re- 
duced; or, as it is almost impossible to place cause and effect cor- 
rectly in such a case, whenever credit becomes stiffer, prices fall. 
At all events, effect and cause react upon each other as they usually 
do. Where business investments tend to become riskier, capitalists 
prefer to retire their money from such investments, and temporarily 
place it where they can dispose of it at any time, even if they have 
to leave it interest free in their banks. Arthur Fonda says in 
"Honest Money'' (p. 109): "The accumulation of money in banks 
in times of depression indicates, not too much money, but a general 
belief that its value is rising, or a fear that it will rise — testifying, 
if to anytliing, to too little money, in fact. Men do not hold a thing 
that brings no income, unless they expect to profit by its rise." 

The investments preferred under such conditions are govern- 
ment bonds, loans upon the deposit of good papers, or discounts 
of first-class bills of exchange. Smaller capitalists go to the savings 
banks and deposit the maximum permitted; often opening accounts 
in the name of wife, children, and other relations to get around the 
maximum clause. The greater demand for this class of investments 
raises their price, or, which means the same thing in this case, de- 
presses the interest rate. In this way the low interest rate of these 
investments and the increase of the larger savings bank deposits 
often is the sign of a stagnancy in business, of an increasing want 
of employment, and absence of confidence generally. It is natural 
that under such conditions the risk premium rises, and that the low 
rate of interest at exchange is accompanied by a high rate of the 
interest demanded for capital required for productive purposes. 

These abnormal phenomena of interest, credit and capital 
are generally accompanied by the decrease or disappearance of 
many of the small deposits, a fact now hidden because generally 
deposit statistics are not classified, and thus its figures are made to 
prove the very reverse of their real meaning, to prove prosperity 
instead of poverty. The excellent New Zealand Registrar-General, 
Mr. E. J. von Dadelszen, to whom I am indebted for his "Statistics 
of the Colony of New Zealand for the Year 1900," gives (p. 309) 
the first classified savings bank statistics I ever met with. It is true 
thev only give the accounts of the Postal Savings Bank, but this 



374 THE ECONOMIC AND SOCIAL PROBLEM, 

bank does seven-eighths of the New Zealand savings bank business. 
Even here, however, there is room for further improvement. The 
lowest class, not exceeding £20, ought to be further subdivided, and 
the average balances of each class should be given. Taking the 
medium figures of each class: £35 for the second "exceeding £20 
and up to £50." £75 for the third of £50-100, etc., £600 for the high- 
est, of amounts exceeding £500, and deducting the figures thus 
obtained from the total balance of £5,809,552, only £458,146 arc 
left for the 142,368 depositors of the first class, or an average of 
£3 4s. 5d. As there were in all 197,408 depositors, this would mean 
that 70% of the depositors only had an average balance of £3 4s. 5d. 
($16) each, while 4 million pounds sterling — two-thirds of the whole 
— were deposited by 19,003 people, one-tenth ofihe depositors, i.e.. 
those with balances exceeding iioo. But, of course, no exact cal- 
culations are possible as long as we are left without the actual aver- 
age of each class. 

I add the following quotation from "The Public" of Nov. 4, 
1905: "Savings bank statistics as evidence of the prosperity of 
workingmen gets another blow through revelations in the settle- 
ment of the estate of Col. Willard Glazier, the wealthy author and 
lecturer. Nearly all his fortune of $135,000 was found deposited in 
the savings banks of more than 50 cities scattered over 15 States. 
In New- York City alone he was a depositor in 18 savings banks. 
These deposits .show up in warm colors through the savings bank 
statistics, as an indication of that improving condition of the work- 
ing poor of which statistics are so full and the working poor so 
ignorant." 

We have seen how the proposed land and currency reforms, by 
striking at the risk premiuni, tend to lessen the gulf between net 
and gross interest and thus only render the fall of the interest rate 
of advantage to the producers; because only the fall of the gross 
interest rate indicates the degree in which capital is accessible to 
them, the terms at which they can obtain it and thus increase their 
share of the product. Losing sight of this important point produces 
the error into which many economists have fallen, when they see 
in the lower interest rate a relative decrease of the share which 
capital obtains of the product. The great whitewasher of capital- 
ism, the French economist Leroy-Beaulieu, a man of the ( liffen and 
Atkinson type, goes so far even as to expect a growing equalization 
of wealth inequalities from the falling interest rate, "until a 
society is formed, in which the positions are more equal, activity 
more general and yet less overboiling; in which it is almost impos- 
sible to form large fortunes, dif^cult to acquire middle ones, and 
easy to attain prosperity." How wonderfully true facts have con- 
firmed this prediction of over twenty years ago! The worthy gen- 
tlenfan never would have uttered such nonsense if he had studied 
more closely the works of his celebrated countryman and fellow- 
economist, Frederic Bastiat, who, in his fourth letter to Proudhon, 



CAPITAL^ CAPITALISM AND INTEREST. I75 

says: "In the measure in which capital increases, interest falls, but 
so that the total income of the capitalist increases. ... So when 
interest falls from 5 to 4, from 4 to 3, from 3 to 2, it means that 
capital has increased from 100 to 200, from 200 to 400, from 400 
to 800, and that the capitalist gradually has an income of 5, 8 
and 12." 

This is in accordance with the facts observed in everyday life, 
especially iii the period passed since it was written over half a cen- 
tury ago. The interest rate has fallen considerably, but the capital 
on which interest is paid has increased quite out of proportion, 
much faster even than Bastiat imagined. In spite of the lower 
interest rate, the relative share of capital, as a whole, has largely 
increased; that of labor has decreased. 

There was a time when the rate of interest exceeded 12%, in 
which the worker's share in the product of his labor was much 
greater than now when money can be obtained at 4% or less; for 
the few tools which he needed belonged to him or were easily 
obtainable, while now the costly machinery required is out of his 
reach. What are his wages, brought down by competition on one 
side and monopoly on the other, aside of the millions paid out as 
dividends by the trusts? The total dividends of one single trust, 
the great American steel trust reached nearly one billion dollars 
up to the end of 1907, as much as the income of all American' wage- 
workers during one month of the year. Compare the relative 
shares in the product of the independent cabinet-maker with his 
simple tools of the i8th century and the wage-worker in a furniture 
factory of the 20th, provided with the most perfect special machin- 
ery, or that of the spinner at the hand-wheel, and the hand of a 
spinning factory, with its thousands of spindles. 

The fall of the interest rate only proves that investment-seeking 
capital increases faster than profits available for interest distribution, 
and thus forces down the interest rate accepted by competing cap- 
italists. 

The well-known process, called watering, exemplified in Chap- 
ter II, showing how the interest rate is kept down where excep- 
tionally large profits are made, helps to illustrate Bastiat's proposi- 
tion that the share of capital is in an inverse proportion to the in- 
terest rate. 

After what has been said in this chapter, it is hardly necessary 
to add that demon Interest will never be exorcised by legal enact- 
ments which forbid the taking of interest, so long a's we leave his 
breeders intact: our existing land and currency laws. Signal failure 
has accompanied all experiments in this direction. When the 
canonical laws prohibited the taking of interest, in the Middle Ages, 
money was locked up; and, as the inevitable result, where the 
money monopoly is given to scarce metals, trade languished. In 
such a case it was a choice between the deep sea of stagnation 
in all intercourse produced by the blocking up of the circulating- 



lyh THE ECONOMIC AM) SOCIAL PKOIILEM. 

medium of exchange and the devil Interest \\hc)^c enticements 
alkired the money back from its hiding-])]aces. i Ik privilejj^c of 
taking usury which was conceded to the jews in those times was 
not meant as a favor to them, but v as the result of an actual 
necessity. 

No direct attack against the arch ■. nemy has ever been of 
any use. Only by cutting ofif tlie roots: ])rivate land ownership 
and the exclusive legal tender monopoly given to a money made 
out of the precious metals, can we kill the. noxious weed. A well- 
known method by which the canonical laws were often circum- 
vented illustrates this. The borrower made a bill of sale of some 
land to his creditor for the debt, by which the former oivner became 
the tenant of the land whose rent represented the interest on the 
borrowed money. When the loan was repaid, the land reverted to 
the former proprietor. 

Before closing this chapter 1 have to meet the objection that 
interest can only disappear completely when .the foundations on 
which it rests are sapped in the whole world, for. as long as the 
reforms which insure its destruction are not carried everywhere, 
capital is supposed to emigrate to those countries where interest is 
still obtainable. 

It is the threat of capital's emigration, which is so often dinned 
into our ears, whenever reforms tliat are un])alatable to our capi- 
talists are proposed. Now let us see which capital can emigrate. 
That which comes under the definition of the orthodox economist?' 
Jjuildings, machines, tools, stock? The buildings certainly cannot 
emigrate, nor can a great portion of the machines, because they 
would bring such a loss to their owners that no amount of interest 
thus obtained would compensate for it, which also holds good for 
the greatest part of the tools and for part of the stock, even if the 
other countries did not at once raise higher customs walls against 
such inundations of merchandise in these times of "overproduc- 
tion." And what if the emigration of this kind of wealth really 
took place? How long would it be before the unfettered productive 
power of the country had produced better machines, tools and 
stock, of every kind and in any quantity? It is true the gold and 
silver, as well as large quantities of jewels, could leave, but I need 
not ex]:)lain how little damage would be caused by such an emigra- 
tion, after the thorough treatment I have given the money (|uestion. 

When we come to capital of my definition, its main foundation, 
the land, certainly cannot leave us. but tlie bonds, mortgages and 
all other tribute-claims might emigrate.''" The whole paper ballast 
of W'all Street might go abroad with or without its owners. What 
difference would it make? The tribute on which all this nominal 
wealth is founded gradually disappears with land nationalization 

* When the corn laws were about to be abolished in England, the Peers 
threatened to leave the country and John Bright expressed the hope that they 
would leave the land behind them! 



DEMOCRACY. 1 77 

and money reform; as we have seen in the previous chapters, and 
meanwhile, with the people's unfettered productive power, it is im- 
material where the trib'ute goes. Nothing remains finally but the 
real wealth which is behind all these bonds, stocks and other kinds 
of tribute-promising pergaments. Nothing can be claimed in the 
end but products of labor; and with our immense productivity such 
debts will be cleared oft in no time. Future savings could only be 
exported in the form of . merchandise; and with the tremendous 
productive power of the reform country, especially one like the 
United States, a glutting of foreign markets would follow, with 
the result that the losses on capital account would soon surpass any 
possible profit on interest account, in the books of exporting capi- 
talists. 

And how long could it be before the success of the reform work 
in one country would force the others to follow its example? At all 
events, the emigration-of-capital bugbear is not the creation of a 
logical brain. For what else is this emigration, under currency 
reform, but the very thing which the very same people have all along 
been putting before us as the highest aim of our commercial policy: 
the increase of exports, the conquest of foreign markets, the very 
goal for whose attainment the workers have been asked to reduce 
their wage claims? And suddenly the fear of these foreign markets, 
which might all at once become too eager for our products, is put 
forth to defend demon Interest! 

No; the foreigner will not harm us in either direction, neither 
by refusing, nor by compelling our shipments. Just as the wonder- 
ful extension of the home market, through economic reform, would 
make us independent of foreign sales, so the colossal increase of 
productive power must enable us to export enough merchandise 
to other countries to pay our debts there in no time. Interest will 
die in the country in which no monopoly maintains it, no matter 
whether in other countries the vermin still subsists for a time or 
not.* 



CHAPTER VI. 

DEMOCRACY. 

The best system of representation fails to insure government of the people 
by the people and for the people so long as the representative instead of their 
servant may become the people's master. 

In the preceding chapters I have tried to show how a thorough 
social reform can be reached evolutionarily, within our existing polit- 
ical and social structure, and without recourse to revolution. Vic- 

* This question of the emigration of capital has been already treated in 
my "Rent, Interest and Wages," page 204-211, published in 1890 by William 
Reeves, London, 



178 THE ECONOMIC AND SOCIAL PROBLEM. 

tory on these lines, however, is not to be hoped for, without a thor- 
ough organization of the people. Otherwise they are powerless 
against the small but well disciplined army of plutocracy, securely 
entrenched within the fort of vested rights, as their monopolies are 
styled by them. If these men knew their real interests they would 
help in the work of peaceable evolution as the only possible de- 
fense against their real enemy: the revolutionist, whose advance can 
only be staid by a destruction of the road over which he proceeds: 
the general discontent. 

The first step towards this organization demands certain polit- 
ical reforms, without which no crue democracy can exist. 

Democracy! I know that it is violently attacked by those 
whose comfortable seats on the back of the people are in danger of 
being lost through unruliness on the part of the poor beast of burden. 
This is only natural, though not reasonable; for any clear-headed 
observer must become aware that the penetration of education into 
the lowest strata of the population can only end in one result: the 
demand for equal rights. Also, that not much time will elapse 
between the moment when this demand is made by the long-suffering 
and the occurrence of one of those terrible upheavals of the com- 
fortable resting-places whereon the upper classes are so complacently 
philosophizing — of which history gives innumerable accounts. 
Now, all riders know very well that it is much pleasanter to get 
down from an unruly horse while it is standing still than to wait 
until it is disagreeably rearing and plunging. 

Foolish as the stolid passivity of the governing classes may 
be, we can understand it. The riding business has been going on 
for so many thousand years, the habit of beholding the world from 
the backs of the oppressed masses has become so inveterate, that 
the idea of getting down is entirely superseded by schemes of better 
saddles, bridles and spurs. If such people declaim against universal 
suffrage and other conquests of democracy, we need not be sur- 
prised; but the case is dif^fcrent when some of the highest intelli- 
gences are found in the same camp: when a Carlyle, with his 
"Niagara, and After," or a Huxley, are among the enemies of dem- 
ocratic rule. 

I (|uote from an article contributed to the Nineteenth Century, 
April, 1890, in which I defend the theories of Henry George against 
an attack of P'rofessor Huxlcx whicli had appeared in a previous 
number of the magazine.* Only the introduction refers to the 
subject in hand. 

In the January number of this review, Professor T. H. Hux- 
ley contributes an article "On the Natural Inequality of Men," in 
which he attacks J. J. Rousseau and the declaration of the rights 

* Henry George was in Australia when Huxley's attack appeared, which 
made me take up the -udgels for him. On his way back he wrote to me: "1 
congratulate you on your answer to Huxley. ... I may write some- 
thing on the abstract points you did not discuss." 



DEMOCRACY. 



179 



of man, in so far as they proclaim man to be born free and equal. 
As long as Professor Huxley confines himself to the special depart- 
ment of knowledge in which he is of a world-known celebrity, the 
domain of biology, he remains master of the field. His proofs 
that man is born neither free nor equal are irrefutable. 

It is true that a child is a helpless slave when it begins its 
career in this world, and it cannot be denied that even the children 
of the same family are by no means equal in their capacities and 
characters. "Some are more powerful and honored than the rest, 
and make themselves easily obeyed." 

So far all right; but the moment Mr. Huxley begins to draw 
political conclusions from these facts, I am no more with him. He 
brings nothing new when he launcftes his arrows against universal 
suffrage, pointed with the argument that only the capable ought to 
govern. Even the simile he employs is borrowed from Carlyle, 
where that great writer declares his opinion of the infeasibility of a 
ship getting round Cape Horn by calling the crew together and 
taking a majority vote as to the direction to take, instead of having 
the competent officers decide it by means of their instruments. If 
a real ship cannot be kept off the rocks by such means, how is the 
ship of State, with its much more complicated course, to be pro- 
tected from the dangers besetting it from all sides, if numbers and 
not competency are to decide its direction? 

Alas! it is an old, old question, as old as the world, this ques- 
tion of government given to strength and capacity, instead of being 
the outcome of majority votes. Hero-worship v. popular rights — 
all the world's history is nothing but an infinite series of variations 
upon this theme. 

The proof of the pudding is in the eating, says an English 
proverb. If we apply this old and simple method to the working 
of the principles in question, we come to a result quite the reverse 
of the one anticipated by Mr. Huxley. The tyranny and bad gov- 
ernment of ages stands arrayed against the system of governing the 
masses by the classes, for this is what hero-worship comes to in the 
end. Even heroes are poor human beings, full of human failings, 
among which vulnerability to the effects of flattery and adulation 
stands foremost. The foul emanation of these swamps will finally 
create a mist around the most pure and upright, through which the 
sun of truth will find it harder and harder to penetrate. The un- 
educated common-sense of the poor clown will see in a clearer light 
the real purport of the most momentous questions touching the 
public weal, than the despot in the midst of the haze by which he 
is surrounded. 

But this is not the worst by any means. As long as the real 
hero lives, things may work tolerably well; but he is subject to an- 
other incurable failing, that of being mortal. Who is to be his suc- 
cessor? We cannot get him elected by the popular vote, for that 
would be Kaviug the crew take a part in the guidance of th? ship, 



l8o THE ECONOMIC AND SOCIAL PROBLEM. 

which is just the thing to be avoided. The hero himself, or the wise 
ones appointed by him, will attend to it. They did so since untold 
ages. What was the result? Have they always picked out the 
wisest? Have they, has he, governed for the welfare of the people? 
Emphatically, history answers "No" in the overwhelming majority 
of cases. The frailty of our poor human nature brings it about that 
irresponsible governors and legislators will first think of their own 
interest before they give way to any other consideration. The final 
result of aristocratic rule always has been, always must be, that the 
governing minority will enslave the powerless majority, will make 
them give up the land and the best of its fruits; will make them do 
all the work for their superiors, who will finally believe themselves 
of a higher blood, born with special privileges, entitled to the right 
of spending their lives in laziness, and having the masses support 
them by their labor. Labor becomes a taint; graceful loafing the 
badge of gentility. Most of the governing done by them is to con- 
serve, and, if possible, increase the privileges they enjoy. Commons 
are enclosed without any regard to the rights of commoners; wars 
are waged in the interest of the governing classes, whereas its 
charges are borne by the people. No, no, Messrs. Carlyle and Hux- 
ley, that kind of governing the ship of State has not proved a suc- 
cess! It may be that the crew will not always pick out the best 
man to take the rudder, but certain it is that the monopoly of steer- 
ing given to a privileged minority has mostly failed to bring out the 
best pilot. And who would blame the poor slaves in the hold of a 
slave-dhow that they think it better for them if they can get the 
mastery of the vessel, even though they, know that they have not 
got the captain's science and experience? It is true that he would 
be much more likely tO' bring the ship safely into port than they in 
their ignorance; but what kind of port is it he brings them to? The 
slave-market, the place where they are to be sold like cattle to hard 
and inhuman masters. Do we blame them if they do not care to 
arrive in such a port, and that they would rather run their chances 
of getting into another place, be it even a desert island, or of meet- 
ing death in the waves of the ocean? 

There is only one clear course marked out for a man loving his 
brethren and mindful of their real good: that is to give them the full 
power over their own destinies, and to work with all his might that 
thev mav get sufficient instruction to use this power. Nobody ever 
learnt how to swim without going into the water, and if we want a 
crew to know how to steer a ship we must give them a chance to 
learn; not by jealously keeping them away from the rudder, but by 
letting them steer, and standing by, showing them how to do it. 
Instruct the people, and cease to be afraid of their ignorance if you 
succeed. Success is impossible, however, unless you look to some- 
thing else first, and that is their being sufficientlv fed. clothed, and 
housed, for there is no wav of getting knowledge into starved brains. 
And this brings me to the main question, to which Mr, Huxley gets 



DEAIOCRACY. l8l 

in the course of his article, that of land ownership; for there is no 
possible chance of ever really improving the people's social posi- , 
tion without first righting this fundamental question. 

Though economic liberty is unattainable without political lib- 
erty, political liberty is a mockery without economic liberty. This 
has been fully recognized by a Conference at Buffalo, State of New 
York, in July, 1899, attended by nearly 900 delegates. The follow- 
ing is an extract from an address to the people drawn up mainly by 
Professor George D. Herron, which was adopted by the Conference: 

"We would urgently emphasize our belief that the militarism 
which menaces us as a people is but the offspring and incident of 
the greater menace of plutocracy, which has established monopoly 
government m the place of government by the people. 

"Monopoly rule is intrenched in every branch of national, state 
and municipal government. By economic force based upon special 
privileges in law and natural resources, upon indirect taxation and 
consequent limited competition, monopoly is centralizing the wealth 
of the nation in the hands of enormous trusts, which are becoming 
irresponsible economic despotisms; which are using legislation, the 
judiciary and all the functions of government, as the mere instru- 
ments of private property; and which are reducing the entire people 
to economic serfdom or enforced wage-slavery. 

; "Political liberty is a mockery zvithout economic liberty. No man 
is in any sense free, either in practice, or religion, or science, so long 
as he is in enforced dependance upon some other man for the op- 
portunity to earn his "livelihood. No individual or political rights 
are secure without security and equality of economic opportunity. 
Equality before law and institutions must be based upon equality of 
opportunity and access to the resources which the common Father 
gave to all people in common. If the State permits a few men to 
own the earth, then these few own the rights, liberties, and moral 
well-being of the people who must live upon the earth. Even the 
further exteVision of the suffrage, so as to grant political citizenship 
to women, which extension we urge and advocate, will avail little or 
nothing without economic freedom to all. 

"We, therefore, make urgent appeal to the people to co-oper- 
ate with us in the institution of such movements, and the support of 
such men as shall propose a social political programme." 

The intimate relationship existing between political and eco- 
nomic liberty is my justification for devoting one chapter to politics 
in a book otherwise exclusively concerned with economic ques- 
tions. I begin with the foundation: The Franchise, or Suffrage. 

In the good old times armed robbers, styling themselves con- 
querors, attacked peaceable populations, forced them into submis- 
sion, after taking away their land and whatever valuables they pos- 
sessed and made laws which deprived the conquered of any par- 
ticipation in the government of the country, reducing them to slaves 
or serfs, without any rights but the right to work for their masters. 



l82 THE F.CONOMIC AND SOCIAL PROI'.LEM. 

Xo wopdtr that in a few generation^ a ,c;reat chango could be ob- 
served in the people. The rough warriors gradually made use of 
the leisure afiforded iheni through the work of iheir serfs to culti- 
vate their minds, to acquire some of the knowledge their time 
possessed, while the poor downtrodden human cattle became mere 
savages, though their forefathers had perhaps been far more ad- 
vanced in culture than the wild clans who overthrew them. When 
civilization advanced, when it became unfashionable to govern by 
right of the phvsically stronger — principally in consequence of a 
little invention made by a German monk who looked for gold and 
found gunjiowder, which enabled a baby's finger to overthrow an 
armored knight — when declarations of independence and "droits de 
rhomme" were the order of the day, the continued oppression of 
the poor, ignorant masses was justified on the ground of their pov- 
erty and ignorance. Which practically meant that all those who 
liad become poor and ignorant because their ancestors had been 
forcibly deprived of their rights were to continue without these 
rights because thev were poor and ignorant. And even in our days 
of universal suffrage we still hear the murmurs of the wealthy 
and educated against the injustice of giving an equal vote to a 
learned university professor and an ignorant boor, unable to read 
and write, knowing as little of the history and laws of the country 
which his vote is to govern as a savage in Centra! Africa; the in- 
justice of giving no more than the same vote to the owner of un- 
told wealth, whose estates cover an area larger than many a duke- 
dom, with thousands obeying- his mandates, than to the citizen of 
the slums, with a few- rags as his only earthly possession, a man 
"without any stake in the country," as the other expresses it, quite 
forgetting who stole that stake! 

Miserable hypocrites! where would you be if you had been 
brought up in the same surroundings? And these surroundings, 
these conditions, arc they more likely to be changed where those 
who profit bv the helplessness of the slave are the ex(^lusive gov- 
ernors of the land, or where the masses are given the power? His- 
torv is here to answer. How long is it since men in the Southern 
States risked their popularity, if not a good deal more, by teaching 
thie negro slave to read and write? And would there be half the 
pains taken to educate the masses possessing the vote if experience 
had not taught the danger of letting the ignorant govern? 

I think I have said enough to dispense with discussing prop- 
erty or education tests. We need not call to our aid Benjamin 
Franklin's sarcasm, when he asked whether the man who had voteil 
under the hundred dollar franchise, because the mule he owned was 
worth as much, but who had lost his vote when the mule died, had 
really had the franchise; or whether, after all, it had not been the 
mule. Nor need we look at the educational franchise in the light 
of our late experiences in the Southern States, referred to in the 
following extract from the New York Worker: "We know that 



DEMOCRACY; 183 

such qualifications are never honestly applied. It is notorious that 
in those Southern States where the law requires that the voter 
shall be able to 'read and explain' -the Constitution of the United 
States, the most ignorant man can register and vote if he is known 
to be a safe supporter of the dominant party; while the poor man 
who is suspected of intending to vote the opposition ticket is called 
upon to explain some constitutional point that the Supreme Court 
of the United States has never been able to agree upon, and so is 
convicted of ignorance, no matter how he expounds it. All this 
talk about the ignorant vote is nothing more or less than a screen 
to conceal the intentions of the dominant school of capitalist poli- 
ticians and gradually to take the ballot away from the working 
class, lest the workers use their lawful power to abolish capitalist 
exploitation." 

' But it is not enough to allow every citizen a vote; it is also 
essential that this vote should be made effective. Every voter ought 
to be represented in the Government of the nation as fully as every 
other. I need not say that this is not the case in most countries — 
in our republic less than in monarchic Germany, for we have not 
even got the second ballot. With us a relative majority still elects a 
candidate, though the absolute majority may be deadly opposed to 
him. If the Republican candidate has 2,000 votes, the Democratic 
one 1,900, while the Socialist polls 1,500, the Republican is declared 
elected, though the 3,400 voters on the other side may be opposed 
to him. In Germany, in such a case, where none of the candidates 
has an absolute majority, a second ballot would be called between 
the two candidates who polled most heavily — in the above case, 
between the Republican and Democratic candidates. As the So- 
cialists might, in all likelihood, have more confidence in the Dem- 
ocrat than in the defender of capitalism, their votes would probably 
swell those given for the Democratic candidate to 3,400, so that 
he could beat the 2,000 Republican votes. Thus a totally different 
result might follow through a more rational system. This does not 
mean that the latter might not sometimes work against new parties 
by enabling the old ones to unite against them in the second ballot. 
As a rule, however, the old system stands in the way of new parties, 
because many of their adherents are afraid of voting for them for 
fear of thus ruining the party of their second choice, whose candi- 
dates their votes might have elected. That such a simple reform 
has not yet been carried in this country is explained by the greater 
chances which the old method gives to the domination of party 
leaders. Party machines hold the votes together, while free votes 
are likely tO' be lost by dispersion. Thus a well-united minority 
vote ensures a continuance of power, though the great majority of 
the country may be irreconcilably opposed to it. In a similar man- 
ner a few individuals, or one man, may obtain the lead in the party 
caucus where the nominations of the candidates are made, thus 
conferring the dominion of a party upon one man. Under such 



184 THE ECONOMIC AXl) SOI lAl. PKOKLEM. 

circumstances, we can hardly expect such a "l)Oss" to be eager for 
a more democratic ballot system. 

For all that, the second ballot is on!v a clumsy attempt toward'^ 
justice, towards the attainment of a fair proportional representa- 
tion. There are far better systems; Init. anyhow, none could be 
worse than the one we are used to. Its unproportionality is best 
evidenced by an exaggerated though possible case. 

Let us supjjose the case of constituencies of 6,000 voters each, 
of whom in each electoral division 3,001 vote for the A party and 
2,999 vote for the B party. In this case, the parliament will consist 
nVrely of members of the A party, while the B partv is not repre- 
sented at all. though lialf of the voters have endorsed it. Under 
the proportional , vote this result would be impossible; each party 
wotild elect one-half of the members. There are different systems 
of the proportional vote. The free list plan is used in Belgium 
and Switzerland. The ofificial ballot has the nominees of each party 
arranged in separate lists, each under its party heading, and each 
party gets the proportion of members to which it is entitled. The 
system has the advantage of simphcitv and least disturl)ance of 
present methods. Its great disadvantage is that it leaves the selec- 
tion of candidates to the caucus, and consequently to the party 
chiefs, unless primary elections take place, wh.ich necessitate double 
work for the voters. 

The Japanese system, which has multiple districts in which 
eJich elector obtains one vote only, reduces this diflficulty, making 
it easier, in spite of party domination, for a number of electors to 
give their nomination and vote to the same candidate, who is 
elected upon receiving his quota of votes; but this svstem has the 
great disadvantage of non-proportionality through a waste of votes, 
as under the plumping system, discussed further on. All the votes 
given to a candidate after his quota has been reached are wasted; 
for they cannot be counted for another candidate to whom the sur- 
plus votes otherwise would be given in preference. Gove and Hare 
do away with this defect. They arrange for preference votes. Un- 
der the Gove system the candidate, before the election, publishes a 
list of his fellow candidates to whom his surplus votes are to go, 
in the order of his choice. This has the advantage over the pre- 
viously mentioned systems that the work is lessened and automatic 
machines can be used; but it still leaves the elector dependent on 
the selection of others, it limits his own choice of candidates. 

The Hare system is the only one which leaves him fully free 
in this direction without requiring primaries. This system does 
away with the single constituencies. Every voter in a collective 
district, let us say a whole State, can only vote for one candidate, 
running for a special office, but all the votes given for a candidate 
in the whole district count for him, so that a number of minority 
votes in each section, which under the present system would have 
been lost, and for this reason in most cases would not even have 



DEMOCRACY. 185 

been polled, are collected and may help to elect provided the total 
of the candidate's vote in the whole State reaches the figure which 
elects. This figure corresponds to the quotient resulting from the 
division of the total number of votes polled by the number of can- 
didates to be elected. For instance, if the total number of votes cast 
in a State is 200,000, who elect ten members of Congress, 20,000 
votes will elect one member. 

Hare takes care that the surplus given to a candidate is not lost, 
but is counted for another candidate. On his ballot the voter marks 
each candidate with a number, according to the preference he has 
for him. His vote counts in the first line for the candidate to whom 
he gives the number "i." If the number "i" on a list is elected, all 
the additional ballots on which the sarne name is now found marked 
"i" are counted for the number "2," and if "2" is elected, for num- 
ber "3," etc. The ballots which are given for a candidate who has 
not reached the minimum figure required to elect him are now taken 
up, beginning with the file which has the smallest number of ballots. 
These are now distributed to the number "2" on each, or, in case 2 is 
already elected, to number '"3," etc. This goes on until the number 
of files left corresponds to the number of candidates yet to be elected, 
when the candidates to whom the remaining files belong are de- 
clared elected. 

The subject is of such importance that I should like to make it 
clear to everybody, and as there may be some among my readers 
who are fond of legal phraseology and who would like to see how 
the reform proposal reads when embodied in the project of a law, I 
repeat my explanation in this form : 

Project of a Lcra' on Proportional Voting. — All elections of mem- 
bers of the Legislature in the State of shall be conducted 

in accordance with the system known as the Hare system, herein- 
under described. 

In this text the expression "full quota" shall mean the amount 
of the quotient resulting from the division of the total number of 
votes polled by the number of candidates to be elected (leaving any 
fraction out of account). 

After the nominations of candidates for election have been 
closed, each voter shall number in the order of his preference on the 
voting paper, commencing with the number "i," the names of as 
many candidates as there are to be elected (or if he so desires, the 
names of more or fewer candidates). 

The vote of each voter shall be used for one candidate only, ac- 
cording to the order of the voter's preference. 

The result of the voting shall be ascertained as follows: — Each 
voting paper shall at first be filed under the name numbered "i" 
thereon, and when all the voting papers are so filed, the votes on 
each file shall be counted ; and if any candidate shall have received 
more votes than the full quota, the votes last filed in his favor 



lS6 rilK KCOiN'OMlf A.Vl) SOCIAL I'U()nLF.^<. 

shall be taken from the file, until the votes remaining thereon are 
reduced to the full quota. 

Everv candidate who shall have received the full quota shall 
be deemed to be duly elected and his file shall be closed, and no 
further votes added thereto. 

Any voting' papers taken from the files of any candidates who 
shall have received more votes than the full quota shall be distributed 
ovisr the remaining files, or over new files if necessary, as votes for 
the candidates whose names are numbered "2" on the voting papers 
so distributed, or according to the name of the candidate numbered 
next highest not already elected, in case the candidate whose name 
is numbered "2" on any such voting paper shall have been already 
elected. 

After such distribution the votes for each of the candidates 
shall again be counted, and where any candidate shall have received 
more than the full quota, his votes shall be reduced to the full 
ciuota as hereinbefore provided, and the surplus votes distributed 
over the other files, or over new files if necessary, according to 
the names numbered "3" on the surplus voting papers, or according 
to the name of the candidate numbered next highest not already 
elected, in case the candidate whose name is numbered "3'' on 
any such voting paper shall have been already elected ; and so on, 
wdienever any file shall have a surplus of votes over the full quota. 

After all surpluses of votes (if any) have been redistributed 
as aforesaid, the contents of the file containing the smallest number 
of voting papers shall be distributed over the remaining files, as 
votes for the candidates whose names are numbered with the next 
highest number on such voting papers not already elected. This 
process shall be repeated with the voting papers on the file for the 
time being containing the smallest number of voting papers; and 
so on, according to the numerical order of the remaining names not 
already elected on each voting paper taken from such small files, 
until the voting papers are, as far as possible, redistributed over the 
files containing fewer votes than the full quota. 

Any surplus of votes arising from the redistribution of the 
votes from the files containing the smallest number of votes, for the 
time being, shall be dealt with as hereinbefore provided. 

After the voting papers have been redistributed as above, as 
far as possible, the candidate or candidates (to the number neces- 
sary to fill the number to be elected), who have received the 
greatest number of votes shall be declared duly elected, whether or 
not they shall have received the full quota of votes. 

In the event of the necessity to decide between two or more 
candidates who have received an equal number of votes, the Chair- 
man or Presiding Ofificer shall decide the election by his vote. 

.■Xn article from a periodical may serve to show how the system 
works in practical operation : 

"On March 19, 1901, Tasmania held an election for represen- 



iDfiMOCRACV. 187 

tatives in the Federal Parliament, using the proportional repre- 
sentation system. The island elected six senators and five represen- 
tatives. For the senators. 18,403 ballots were cast, besides 419 
invalid at the start from improper marking, and 1,112 became 
inoperative in the course of the count, because, when those ballots 
were reached, all the candidates on them had either been elected 
or 'eliminated' in the course of the count, leaving 17,291 voters who 
aided in the election of the candidates to represent. Thus nearly 
92 per cent, of the voters were represented, while in ordinary 
elections sometimes a little over half the voters, and sometimes a 
deal less, are represented, and very inadequately at that, being com- 
pelled to vote for the nominees of the machine." 

Similarly as to the House, 18,039 voted, of which 1.014 were 
"exhausted" in the count, besides 533 mismarked, leaving 17,025 
electors represented, instead of half of them being practically dis- 
franchised. 

All were elected who received the highest vote on first choicCj 
so that the transfers from second, third, and subsequent marks of 
preference made no difiference in the result; but the voters knew 
that, as a rule, they ran no risk of "throwing away their votes" iri 
voting for the men they deemed most competent for first choice^ 
because, if not utilized for these, they would be for less popular 
candidates marked "2," "3," "4," or "5." 

No difficulties or complications whatever were experienced in 
the count, although the ballots were brought from all parts of the 
island to be counted in Hobart, located in the south-central portion. 

One important effect of this proportional voting system will be 
that it denwcraticcs the caucus, and thus deprives the politician 
of his most effective weapon. President Garfield said men in his 
'State had gone to the polls for thirty years, with no more chance 
of seemg a candidate of their own way of thinking in Congress, 
than if they had Uved under the Czar of Russia. 

The Hare system not only elects according to the preference 
of the voters, but also nominates as the people desire. Anybody 
can propose nominees for the party, and if he finds a certain support, 
can have his man on the list. It does not matter if by that means' 
many more candidates are on the list than there are places to 
fill, because not a single vote will be wasted. Each elector adds 
numbers of preference to the names on his list, and according to^ 
these numbers will his votes be counted. If he has given his number- 
"i" to a man who has not the shadow of a chance, his vote will 
count for the man to whom he gave number "2" on his list; and so 
forth, until it is counted for someone on this list who receives 
enough support from other votes to obtain the necessary quota. In 
this way every voter has a chance of nominating his own candidates, 
and of testing the popularity of these candidates, without any spe- 
cial primary election. If he succeeds in obtaining a sufficient num- 
ber of votes for his nominee, he will carry him through: if he does 



i88 TiiF. rxoNOMic Axn ?ncT.\r, problem. 

rot. liis vote is not lost for all that, as it finally counts for somebody 
of his or another j)arty whom he likes next best to the nominees pre- 
ferred by him. The business of the caucus thus will have been given 
over to the whole people, as it oug^ht to be. 

The most important effect of the .system is that it would 
gradually break up parties altogether, or, at least, parties in the 
present sense of the word. In a general sense, there always will 
be parties, for two men who agree to vote onlv for men advocating 
a certain policy, already form a j^arty. What I mean by party here 
is the erection of a few big pens, nfostly two only, into which 
the electors are forced, according to their preference, if they do not 
want to waste their votes. Whether certain principles, or onlv the 
names of certain leaders are affixed to the pens' doors, is immaterial. 
The proportional vote would leave it to the electors to decide how 
many different pens they want to erect, and in which special pen 
they feel most comfortable. 

The proportional voting system has been objected to on the 
ground that it would bring a number of faddists into Congress. 

So it would, no doubt, but where is the harm? Faddists are 
men with one idea, of whom Prince Bisnjark once said that he 
did not dislike them, for they had one idea more than most men. 

The progressive laws of to-day which are applauded by vast 
majorities were the fads of yesterday. And why should not every 
citizen have the right to send somebody to the House who represents 
his favorite idea, even if it is a fad? Is it less correct to vote on 
such ground than to vote for private interests ? Who is the better 
citizen of the two — the one who forgets the interests of his pocket 
and votes for the men fighting for a great social reform, or he 
who has no other ideal than his personal advantage or local patriot- 
ism, who gives his vote to the man who pays him or who is likely 
to procure the greatest amount of Government patronage for his 
section of the country? 

It may be inconvenient for the chief of a party to keep the reins 
of government, if the loaves and fishes of which he is the distributor 
lose their charm for electors and elected, but only where he lacks 
a noble enthusiasm, which makes him forget everything else but the 
desire to obtain the greatest good for the greatest number. A party 
chief of this nature will rejoice in the nobler task set before him 
and the possibility of accomplishing it. Instead of employing his 
political arithmetic in the direction of figuring where his official 
patronage will tell most on the support he can obtain, he will in- 
vestigate which progressive law is likely to command most votes, 
and he will work in this direction. Is it not worthy of his best 
elTorts to fight for that reform of the electoral system which pro- 
mises the possibility of such a change in electoral tactics? 

It has also been urged against the proportional vote — that it 
favors the rich, who can get up an agitation in the large district 
which would be substituted for the present small constituency, to 



DEMOCRACY. 189 

the exclusion of the poorer man,, who can only canvass his own 
locality, not being able to work the larger district. The very op- 
posite is true. For the best men in the country, who have nothing 
to recommend them but their devotion to the people's interests, 
without financial means to back their candidature, it will be easier to 
obtain a seat under the new system than under the present one. 
A valid proof of this is supplied by the electoral statistics of 
Germany. The poor men's party, the Social Democratic party, 
polled 3,250,000 votes at the last election (1907), representing al- 
most one-third of the total vote cast, but obtained only one-ninth of 
the representatives elected. If Germany had the proportional vote 
there would be 1 17 Socialists in Parliament, instead of 43, out of 397 
members. The Clericals, with only 1,850,000 votes, would only 
have 69 representatives instead of 105. And to think that men, call- 
ing themselves liberals, rejoiced at the outcome of a miserable elec- 
tion system becavise it injured an antagonist! 

If it were merely a question of money, social democracy would 
be nowhere, and plutocracy would govern without hindrance; but 
fortunately money is not the only power. After all, the appeal to 
the higher motives in man is a far greater force in the direction of 
human aflfairs if it can be made under the conditions that render it 
efifective. These conditions are supplied by the proportional vote 
and its system of large constituencies. 

Here is a man whose life is devoted to a great principle. He 
fights for it day and night; his powerful voice is heard all over the 
land, and his adherents are counted by the hundreds of thousands. 
This is the very man whom you will never see in one of our present 
parliaments elected on the single constituency system. The men 
who can grasp his ideas are not very thickly scattered over the 
country. Though combined, they would be able to elect their leader, 
if the total of their votes were counted, they would not have the 
shadow of a chance in any single constituency. Talk of wealth 
profiting, of poverty losing, by the proportional vote! This man 
and his adherents are too poor, perhaps, to coutest a single con- 
stituency against the plutocrat who dominates in that section; they 
have so little influence in each separate constituency that even if 
they could collect money enough to pay for election expenses, they 
would be at the bottom of the poll. The master-mind would suc- 
cumb to a stupid local politician, whereas under the P. V., without 
any expensive canvass, all his friends in the country would put his 
name foremost on their list and thus elect him. 

Henry George would not have had the smallest prospect of 
being elected if he had been running for Congress, in at least ninety- 
nine constituencies out of a hundred; but under the proportional 
vote, he would have had "i" on all the ballots of his partisans in the 
country, and of many thousands besides, who, though not in every- 
thing of his opinion, were at least convinced that they voted for an 
honest, incorruptible m^n with wide views fir.d art urgent desire for 



•IQO THE ECONOMIC AND SOCIAL PROBLEM. 

the public welfare. I am confident that in such --i case no other Con 
gressman would have polled so many votes as the first preference of 
the voters. 

Instead of making the whole country one single constituency, 
as Hare proposes, it has been suggested as a compromise to throw 
together only a certain number of constituencies, half a dozen, for 
instance. I believe that the change thus proposed is for the 
worse, and that the original and unadulterated Hare System is in 
every way preferable. The larger the constituency, the greater are 
the chances for minorities of being represented; the more constit- 
uencies, the less hope there is for struggling progressive thought to 
find a representation in the council of the nation. Take the case of 
New Zealand, for instance, with its 74 constituencies, and let us 
suppose that 148,000 were the total of votes cast at an election, 
which makes 2,000 votes the number electing a member. Now, let 
us suppose there were 80 Socialists. in each constituency. Under 
the present system they would not even dream of putting up candi- 
dates, as the 80 partisans in each district would not have the slightest 
hope of success. But even if the country were divided into 6 voting 
districts of 12 members each, they could not elect a single member, 
as their vote would nowhere exceed 1,000. If. on the other hand, 
the whole country formed one single constituency, they would send 
3 members to the house. With constituencies of 6 members, even 
250 votes in each local district might not give them a single mem- 
ber; while on the centralized plan they would obtain as many as g 
representatives, and by joining with other progressives, might 
largely infuse legislation with Socialistic principles. 

I think the incentive to thus improve an excellent plan back- 
ward was the fear that the work of counting the ballots might be 
a little too complicated. I am not so sure of this, but there need not 
be m.uch more work for each voter than in the other case. He 
would simply pick the list he specially favors from the rest, and 
would vote for it by affixing the numbers according to his prefer- 
ence. Of course, there would be more names on the general list 
than there would be on each district list, but it will never be neces- 
sary to number all names. It suffices to mark those specially pre- 
ferred, while the others will be taken in the sequence in which they 
are printed, if they should be needed. The case where men of other 
])arties and lists will be added to, others struck out from a special 
list by the voter, will be exceptional; and even then the additional 
work is almost nil. 

Anyhow, the advantages of the larger constituency are so great 
that minor considerations must be relegated into the background. 
The larger the constituency, the more effective will be the vote of 
the whole people. The smaller the constituency, the more of the 
evils inherent in the present system are preserved. 

The more effective we make the vote, the better do we obtain 
ft true expression of the people's will, The new system will mak? 



DEMOCRACY. I9I 

elections tell a different talc from that of to-day; not money will 
profit, but intellect and character. Principles, not men, will be 
elected, which means a back seat to that class of men called poli- 
ticians, who treat politics as a business — a lot of nobodies who all 
over the world bring parliamentarism into contempt. Only a party 
leader who himself belongs to this stamp will feel an instinctive 
horror of the new system. A leader capable of great thoughts, pre- 
ferring to be the first among equals to being the master of servants, 
will welcome the proportional system. 

The bitterness of party strife will lose its venom, and the par- 
ticipation of the people in elections will be more general. Many 
who now abstain altogether from voting, because the proposed can- 
didates constitute to them a mere choice between evils, will interest 
themselves in the political contest when they have a chance to vote 
for men of their own choice. 

Opinions and principles may not be the only rallying points of 
the future voters. It is very likely that different trades will send 
their own delegates — practical men, who know better what the peo- 
ple want than the' lawyers who constitute such an undue proportion 
of our existing parliaments. (In the U. S. Senate 74 out of 92 mem- 
bers are lawyers.) Unfortunately, for good talkers are seldom great 
doers. Doubtless a certain danger might still exist in this case that 
the interest of the community could be neglected for that of the 
trade; but, aside from the fact that the totality of trade interests 
forms the totality of community interests, even this would be pref- 
erable to a narrow local interest representation. Quite a different 
tone would govern the discussion of such parliaments, as every one 
can see who studies the business-like and concise addresses and 
discussions at co-operative congresses, that of Great Britain, for in- 
stance. A co-operative congress does more business in one day 
than many a parliament does in a week. 

By-elections, when a member resigns his seat or dies, are un- 
necessary under the proportional vote on the Hare system, as the 
imelected candidate on the same list who obtained the next largest 
number of votes would simply take the vacated place. 

The proportional vote must not be confounded with the 
scriitin de liste, which also collects a number of single member 
constituencies into a large one of many members, a very objection- 
able method of doing away with the defect of the small constit- 
uency: the subordination of the common to the local interest. It is 
a device of party politicians, because nothing strengthens more the 
autocratic power of the caucus of nominating candidates. Cases 
happen under this system that a candidate is strongly opposed — 
even by the majority of his own party — in his own local district 
where he is known; but is elected by an overwhelming majority, 
"because the other districts that vote the straight party ticket, not 
knowing the man, gave him their votes. In fact, it could occur that 
each single candidate on the list is rejected by the people among 



1^2 THE ECnXOMir AM) SOCIAT. TRor.LEM. 

whom he Hves, and yet tlie whole Hst pass with a large majority, 
because each district of the constituency, not knowing the candi- 
dates from the other districts, gives them an undivided vote, as the 
party leaders have nominated them. The defects of this system 
have been used with the ignorant to throw disfavor on the propor- 
tional vote, with which it has nothing in common but the throw- 
ing together of electoral districts; whereas the fact that under the 
P. V. each elector votes for only one candidate enables him to select 
whomsoever he prefers and to leave out altogether those he does 
not know or like, thus preserving the advantages of the many-mem- 
ber electorate, without its drawbacks. 

Plumping, or the multiple vote, is an improvement on the 
scriifin dc lisfc, through the faculty given to the voter to concen- 
trate his votes on one or more candidates whom he prefers. It is 
the most primitive of proportional systems, for it wastes all those 
plumped votes which a candidate does not need. If Jones needs 
only 2,000 votes, while 5,000 are concentrated on him, through 
plumping, 3,000 votes are absolutely lost; while under the Hare 
system they are used for the man second on the list, and so forth; 
so that all the votes are in any case given for some party friend. 

The secrecy of the ballot ought to be combined with the greatest 
convenience of the voter. I understand that in Queensland the 
vote can now be given by postal card. I do not know how they 
secure the secrecy, but can see no dif^culty in this direction. Each 
voter might be supplied with a parcel of cards of different colors. 
each color for a different election or referendum vote. The cards 
would be numbered, and if no record is allowed to be kept where 
each number was sent, a control of the vote by the offtcials w-ould 
not be possible. The influencing of the voter cannot be avoided 
by the most ingenious systems of secrecy; but social reform would 
put an end to economic dependence, and at the same time would 
greatly raise the financial value of the vote for each shareholder in 
the State. No briber could afford to pay as much as the vote would 
transfer to him from the common pocket, for this would leave him no 
profit; and no voter could, on the average, alTord.to take less, or his 
loss on one side would exceed his profit on the other. You can 
afford to bribe one shareholder of a limited company to vote for 
something which is against his interest, by paying him more than 
lie loses; but you cannot bribe all, for their loss as shareholders 
would either exceed their gain by the bribe, or your profit would 
not reach the outlay. A well-known saying is: "You can fool 
some people all the time, and all the people some time, but you 
cannot fool all the peoj)le all the time." 

The greatest danger of the present system is the indifference 
of the voters, many of whom do not go to the polls; just as small 
shareholders in stock companies mostly do not attend at the gen- 
eral meetings, or do not even send proxies, unless somebody 
specially asks for tb^^m. Their other intei^sts outweigh too much 



DEMOCRACY. I93 

the one influenced by their vote to make the sacrifice of time worth 
their while. Social reform will change this. 

The administration of the people's land under land nationaHza- 
tion, the management of the currency, organization of distribution, 
perhaps also of certain branches of production, are public measures 
so deeply touching the self-interest of the voter that he will be as 
eager to be represented as the large shareholder is certain to look 
after his own interests in a stock company. — Even with the best 
systems of voting, and the most general participation of the people 
at the elections, it is not possible to be absolutely certain that the 
views of the voters are really faithfully represented. Leaving even 
the question of honesty apart, it is not to be supposed that one 
m.an will exactly hold the same views on every point as another, and 
generally the elector must be satisfied if his representative is at one 
with him on some important points, though he may diverge in 
others. An imperative mandate might obviate this inconvenience. 
Each representative represents as many votes as he received, and 
has always to deHver the votes of his mandators where he has not 
been given full liberty to vote as he pleases. The principal objec- 
tion against this system — which caused its abandonment after it 
was tried in the beginning of the French Revolution, when the rep- 
resentative arrived with his cahicr, which directed his votes — no 
more exists. The general ignorance then was so great that no 
hope of reform could be entertained except by sending the most 
intelligent men to mutually enlighten each other. Binding the del- 
egate beforehand meant simply renouncing every hope of arriving 
at any useful solution. This has entirely changed in our times. 
Our public school system, the public meeting, the press, and the 
accessibility of literature, have disseminated general enlightenment, 
and the representative is sent less to form his own opinions than to 
give vent to those already held by his electors. The cases where 
speeches in Parliament influence the votes have become more and 
more the exception. The party meeting often decides beforehand 
how each member is to vote, and the speeches are usually made 
for the constituency, or for the people at large, which could be 
reached by other means. A reader of certain parliamentary debates 
is often struck by the strange fact that some bills are passed by a 
large majority after almost every speaker has opposed them. The 
majority, certain of the result and not wishing to- waste time, keeps 
silent, and lets the opposition do all the talking. Many members 
sit in the refreshment-rooms or chat in the lobbies, and only come 
in when a division takes place. 

The single change which an imperative mandate would bring 
into the system, would be the substitution of the elector's mandate 
for that of the party meeting. It is therefore mere nonsense to con- 
sider such a mandate as derogatory to the dignity of the member. 
w"ho feels no such scruple when he votes as the party dictates. 
There is still plenty of work to be done which requires the exercise 



194 THE ECONOMIC AND SOCIAL PROBLEM. 

of his personal intelligence and initiative, such as the wording of 
laws (the principles only of which have been decided for him), the 
perusal of the public accounts, the investigation of abuses, the con- 
trol of the executive, etc. A lot of useless talk could be done away 
with, if each elector's imperative mandate were registered at the 
beginning of every session, and debates avoided where a decision 
lias already been arrived at by the majority of the electors, or as 
soon as a majority is reached through additional votes sent to the 
chairman during the debate. Such votes may come from electors 
who have reserved their mandates, or from the representatives as 
far as they possess free mandates, i. c, full power to vote as they 
please. In such a case, the debate would at once be closed. There 
are plentv of other possibilities to get rid of suppressed speeches, 
without spending the peojile's time and money thereby! 

However, there might be some inconveniences connected with 
such a svstem. and in anv event another remedy against the despot- 
ism of the rcpresentati\e has been obtaining great popularity: the 
direct ^■ote in its modern form, tJic Referendum and the Initiatii'c. 

This system was first adopted in Switzerland, where it takes 
the place of the old Germanic and also old Greek and Roman cus- 
tom — as yet existing, as the Laiidsgenieinde, in some Swiss cantons, 
and, in the Xew England town meetings — of having the people 
decide by their direct vote, in public meetings, what laws they want 
and what expenditures they authorize. The old system would not 
be applicable to the administration of a modern state, and the refer- 
endum — the referring of decisions to the approval or negation of 
the people's vote — has taken the place of the old folkniote. Tin- 
Swiss have two kinds of referendum, the optional (facultative) and 
the obli-:(ator\, or compulsory. The one is taken whenever a certain 
number of voters demand it; the other has to be taken before cer- 
tain laws become valid, or before expenditure, beyond certain lim- 
its, is allowed. The right of the Initiative enables a certain number 
of voters to projiose a law. It would be useless to deny that the 
referendum has not always given the best of results, if the results 
are judged by the most intelligent section of the community. A 
river cannot mount higher than its source, and a people will not 
dictate better laws than their imderstanding permits. The intel- 
lectual aristocracy, who think themselves fitted to educate the 
masses, believe they can besi do so by passing progressive laws, 
even if these laws go beyond the people's wishes for the time. They 
feel sure that the masses will soon be educated up to the laws. It is 
the s\stem of benevolent despotism, of which some think that it 
produced good results in its time. The safest plan, however, and 
the only possible one under a real democracy, is to wait until the 
people are ripe for progress, instead of presuming to force on them 
the progressive measures in the expectation that these will accelerate 
the ripening process. 

The rising sun first illuniinalcs the highest peaks, whose bril- 



DEMOCRACY. 



195 



liancy announces the coming day. The complete victory over the 
sway of darkness, however, is only gained when the whole body 
of the mountains and finally of the lower country is lighted. So 
the world's great men merely indicate the lines of future advance, 
but this advance is only accomplished when the intellectual progress 
has become the property of the masses from the monopoly of the 
few. The Swiss progressives have long since learnt this, and they 
humbly bow to the will of the people, even where the best laws are 
rejected by the referendum vote. So, for instance, when the law 
for workers' insurance against disease and accident — the result of 
ten years' hard work — was passed by the two houses of the legisla- 
ture; but when it was submitted tO' the popular verdict, May 20, 
igoo. the Swiss people refused it, with 341,254 against 146,954 
votes. The further education of the masses since then had the 
result of bringing out another law, which is under discussion while 
I add this, in June, 1908, and which has the best prospects of adop- 
tion by the people. 

This proves how little the representative sometimes represents 
the people's ideas; also, in the middle of the nineties, a military law 
was adopted by a vote of 11 1 to 9 by the Nationalrath, and by 30 
to 12 by the Standerath, and was rejected by the referendum with 
269,751 against 195.278. 

The Referendum is a reform urgently demanded, and one 
wh.ich no really democratic country ought to be without. 
One State of the Union after another is adopting it as 
the surest remedy against boss rule and graft. * The Initiative, 
though not quite as important, is also desirable, to enable the people 
to overcome the inertia of their legislators, sometimes caused by 
impure motives; and th.eir subsequent failure to pass certain laws 
which are demanded by popular opinion. The Recall, the right to 
dismiss at any time a representative, when a majority vote against 
him at a poll taken upon the demand of a certain number of his 
constituents, proves that he no longer enjoys the confidence of his 
electors, is another commendable democratic measure. The main 
result of this right would be to strengthen the impulse to resign, en- 
gendered by decency, whenever a representative becomes doubtful 
as to his position with his electors. Any sensitive man would in 
such a case submit to the test of a new election of his own initiative, 
rather than continue in a dubious position. The Recall would also 
be a' wholesome strengthener of an elected candidate's faithfulness 
to election promises. It would not be applicable, however, under 
the proportional vote on the Hare system, and at all events is not 
of great importance where the representative is kept in order by 
the referendum bridle. 

* "Equity." edited and published ])y C. F. Taylor, 1520 Chestnut Street, 
Philadelphia, Pa., keeps its readers posted in regard to the progress made 
by the referendum and the proportional vote. The Prop. Rep. Society, 26 
Martin's Lane, London, only attends to the prop, vote,- : 



196 THE i:COXOMIC AND SOCIAL PRDELEM. 

For constitutional changes, a majority vote of the people — 
of all entitled to vote, not only of those actually voting — ought to 
be demanded; and among such constitutional laws that which re- 
stores the land to the people ought to be placed. In fact, from an 
ethical point of view, the people have no jurisdiction here; they 
have no authority to give away the heirloom of unborn generations; 
they have no right to re-create private land monopoly after it once 
has been terminated. Every new child born into the world could 
claim the privilege to nullify any enactment that deprived him of 
his full share in God's gift. Any other obstacle to changes in the 
constitution but the requisition of such a majority of the whole 
people might turn justified conservatism into a clog to legitimate 
progress. We nmst not forget that a majority of all entitled to 
vote means considerably more than a mere majority of those ac- 
tually voting. 

To introduce such a radical change into the constitution of the 
United States will not be found an easy matter in consequence of 
the power given to the smaller States to resist constitutional changes 
demanded by the majority of the nation ; but the final victory of the 
latter cannot remain doubtful. Archives full of once valid but long 
since worthless State documents, and many a bloody page of his- 
tory, show us which way as a rule victory finally went in the battle 
of which is to govern: the people or the parchment? The change 
must come or the United States will cease to be a democracy. 

The question of constitutional changes brings up that other 
one of the constitutionality of laws. Who is to decide w'hether a 
certain law keeps within the bounds of the constitution? The 
United States allow such power to the courts, who thus override 
the law-giving power of the people, delegated to the State legisla- 
tures and to Congress. We know that the courts make a liberal 
use of this power. T need only recall the Income Tax Law, passed 
by Congress and the President, but annulled by the Supreme Court 
of the IJnited States, or rather, as has been a common thing lately, 
by one judge, who gave the fifth vote against four on the other side. 
r)r'that recent decision of the same Court and single vote, affirm- 
ing the unconstitutionality of a law of the State of New^ York, 
which, in the interest of health, limited the working hours of New 
York bakers. It is highly instructive to note the grounds on which 
sometimes laws are declared u:;coi:stitutional. The New York law 
was supposed to infringe the freedom of contract guaranteed by 
the Constitution of the United States — freedom of contract, where 
one of the contracting parties has to starve, if he does not accept 
work regardless of terms! Or a late decision of a San Diego court, 
wh.ich declared this city's Referendum law unconstitutional, because 
it was on the lines of a pure democracy, while "the law-making 
power of a city must remain in a representative legislative body." 
'\s if it were not the business of the people to choose the means by 
which they will give expression to the views of the majority! It is 



biiMOCRACY. 197 

fio wonder tliat the power thus exercised by the courts, a power 
which subordinates the legislature to the judicial department, grows 
in disfavor. The people, as the source of the constitution, are the 
final judge as to the constitutionality of laws, and to the people the 
last appeal must lie in each case where a court declares a law un- 
constitutional. If they decide by a majority vote, such as will 
authorize changes in the constitution, that the law stands, then the' 
judgment of the court ought to be annulled. The simplification of 
such changes, as here proposed, will make such appeals less cum- 
bersome than they would be with the present apparatus, at least as 
far as the national constitution is concerned. The pastime of de- 
claring laws unconstitutional might be less frequently indulged in 
if the third failure of any judge in such an attempt would involve 
his incapacity of further serving on the bench. 

One of the most important questions which will come up when 
future changes in .the constitution are made by the people will be 
the composition of our present second chamber, the Senate of the 
United States. Second chambers, often wrongly called first cham- 
bers, are, anyhow, in very bad repute with democrats. My old 
friend, J. Morrison Davidson, than whom no better and sincerer 
democrat ever drew breath, makes out their bill of indictment in 
his "Politics for the People" (London, Reeves), especially that of 
the mother of second chambers, the British House of Lords, an 
anachronism, and a dangerous one at that. Mr. Davidson has 
drawn up an ominous list of its sins against the people, in proof 
that it has opposed any kind of progress, and usually has only 
yielded out of fear. But its very origin must condemn it, for its 
authority is based on the foulest wrong ever committed against the 
people of England: the robbery of their land. Its only title is that 
of usurpation based upon usurpation. The lords first stole the peo- 
ple's land, and then founded their hereditary privilege of governing 
the country upon the possession of the soil. As the same author 
points out, the American Senate was nothing but a servile copy of 
a bad precedent, with its own goodish quota of sins in addition, 
especially in the matter of slavery. "Suffice it to say that, but for 
the existence of the American Second Chamber, the Republic would 
have been spared all the horrors of the Civil War, with its holo- 
caust of 900.000 livcs and its loss of £1,400,000,000 of treasure," 
is the summing up of the history of the Secession War by our friend. 
"Wherever two chambers exist, one must be master; and, unfortu- 
nately for the Western republic, the master is the plutocratic upper 
chamber. Hence Lord Salisbury's admiration for the American 
Senate, in which the little State of Delaware is put on a footing of 
equality with that of New York, with more than thirty times its 
population." 

It seems to me, however, my worthy friend goes too far when 
he concludes, from cases where the so-called upper chambers did 
not represent the people's will, through an unjust composition, that 



lyS THE ECONOMIC AND SOCIAL PRORLE^I. 

second chambers b\- tlieitiselves are a l)ad institution, and that, if 
the second chamber represents the people as mucli as the other 
chamber, it simply supphies a needless repetition of the same vote. 
Two bodies, though of the same origin, may have dififerent ideas 
on some points. We have seen, in discussing the referendum, that 
the representative does not always correctly represent the people's 
wishes, and two representatives elected by the same vote often differ. 
The history of the French Convention, on the other hand, proves 
that the pendulum has its good uses. It is true that to a certain 
extent the referendum can undertake its regulation; but a second 
chamber might in many cases save the trouble of recurring to the 
referendum. 

Certainly it would be far better if a second chamber could be 
obtained which in a high degree represents popular opinion, with- 
out being a mere duplication of the other body, but how attain 
this end? A different division of the electoral districts would not 
be feasil)le under the proportional vote. Wealth should be as little 
a determining factor in the franchise for one chamber as for the 
other, especially in a country where common land ownership makes 
the whole people proprietors. Nor are appointments by the (lOv- 
ernment to be recommended; for the legislature ought to control 
the Government, and an administrator ought not to be allowed 
to select his own auditor. 

I think a good idea would be to limit the franchise of the sec- 
ond chamber to all citizens above a certain age. say forty. Not 
the passive franchise, as in Sparta's Gerontes (Council of the Aged), 
but the active franchise. Only the citizens beyond a certain ri])e 
age have the right to vote for the second chamber, but I see no 
objection to their choosing younger men if they wish to. Wherever 
vounger men are elected by their elders, we may suppose that they 
possess a greater ripeness of judgment than the average men of 
their age. 

Most of us who have lived a certain number of years are as- 
tonished to see, when we look back on our state of mind as it was 
in our youth, in what different aspects men and things appeared to 
us, hovv much we owe to a ripened experience. There is a great 
difference in the judgment of the average man above forty and the 
average man below forty. They have a joke against a certain 
country in Germany — VViirtemberg — that the people there only 
become reasonable at forty. A cooler reflection on the conse- 
quences of certain measures, the outcome of temperament and 
experience, gives the riper men a decided sujjeriority as critics, and 
thus they are emmently fitted for the work in (luestion. 

The referendum is not the only institution for which little 
Switzerland, the purest democracy in the world, might afford 
.\mcrica an object lesson. Its Exectitive is also far superior to 
ours. There the Parliament appoints a committee which carries on 
the executive work of the Government, each of the members un- 



DEMOCRACY. I99 

flcrtaking a special branch of the administration, and which elects 
one of their number as their president for the year. The two cham- 
bers meet together and elect the seven members of the Federal 
Council for three years. The President is only the chairman of a 
board, without any other privilege. The system works to perfection, 
and yet there is an agitation towards a change in the constitution, 
which would place the election of the Council in the hands of the 
people — changing the indirect election into a direct one, which con- 
stitutes a real progress only under a good proportional voting sys- 
tem. Without it, the direct system is certainly more democratic in 
theory; but in practice, as we have seen, in our country, a miserable 
nomination system clogs it with the defects of the indirect system, 
and without preserving the advantages of the latter. Practically, 
the nominating caucus of one of the two main parties elects, and, as 
a rule, this caucus is not elected by the people as a whole, but by 
political clubs, usually domineered by a few politicians. The at- 
tempts made by some of our States to substitute the regular vote of 
the whole people for that of unauthorized self-elected political clubs 
are certainly in the right direction, and, if the people voting at the 
primary elections selected their delegates on the Hare system, noth- 
ing further could be desired. This would combine the advantages 
of the indirect with those of the direct system, where one or a few 
officials are elected by a large constituency. It would be the system 
W'hich ought to govern our Presidential elections. The nominations 
would not be left to irresponsible conventions, without any mandate 
from the people, but to the product of the primary election, the 
Electoral College, to whom the present constitution entrusts the 
election. But this college, far from being a meeting of dummies, or- 
dered to elect the President whom the majority party has nominated, 
into which custom has transformed it, would then be a congress of 
independent delegates, entrusted with the taSk of nominating and 
presenting to the people's choice two sets of candidates. Of course, 
the members of the College ought to be elected on the proportional 
system, so that all parties are fairly represented among the delegates 
from each State. Those members of the College who have no 
chance of bringing through their own candidates would then use 
their influence to insure the nomination of their second choice can- 
didates, i. c, those candidates selected bv another party who are most 
acceptable to them, or, at all events, the lesser evil, if they cannot 
pass their own. Under the present system they are not only abso- 
lutely disfranchised, but their very attempt at carrying through an 
independent third party candidate may insure the victory of the 
party most obnoxious to them. 

The reform here proposed would not only free the birth of new 
parties from such risks; it would do more than that. It would bring 
to their ranks manv thousands of voters whom the danger of insur- 
ing the victory of their worst enpmies to-day keeps from voting for 
the men of their first choice. Nominations by an independent col- 



200" THK ECONOMIC AND SOCIAL PROBLEM. 

ko^e. issuino- from the direct proportional vote, would thus facilitate 
in this country the peaceable success of new parties which hardly 
anything- sh6rt of a real revolution could bring to the top under ex- 
isting circumstances. At the same time the new system would pro- 
tect the old parties from sudden discomfiture by a revolutionary 
minority, though relative majority, by enabling them to defeat the 
common enemy at the last moment, through their joint vote. All 
this could be accomplished without any more work and expense 
than are entailed by the present system, because we should do away 
with the whole claptrap of the existing convention business; the 
jugglery by which the bosses and their tools manage to endow with 
the appearance of life the corpses of old rotten party organizations. 
Those to whom this appears a harsh judgment had better remember 
the election of 1904, and the part which plutocratic influence played 
in the Democratic nomination. Does anybody really believe that an 
official convention (the new Electoral College here proposed), 
chosen by the proportional vote, would ever have made such a nom- 
ination? Or, in other words, that the Democratic party, as a whole, 
would have really enlisted under such a standard? The answer was 
given by the thousands of Democrats, who either abstained, or else 
voted for the opposite party, rather than vote for the candidate of 
bosses, bought by or acting for plutocracy. 

The members of the cabinet could be nominated by the same 
Electoral College and elected at the same general election, or they 
could be appointed in the present way. 

This chapter would become too long if it treated all the reforms 
cur Constitution requires to make it an instrument for the expres- 
sion oT a free nation's will, instead of a curb upon democracy. As 
an instance. I only mention the absolutely undemocratic system 
which delays the entrance into of^ce of the newly elected President 
and congressmen for four months, so that in the interim often men 
legislate and govern who have lost the people's confidence. The 
last four months of President Buchanan's administration supply the 
best proof of the fatal consequences. If Lincoln and the newly 
elected members of congress could have taken their seats imme- 
diately after their election, the Southern States would not have been 
given the time for that preparation for the Civil War which Bu- 
chanan's inactivity afforded them. 



CO-OfERATION. 201 

CHAPTER VII. 

CO-OPERATION. 

Between the isolated peaks of Individualism and the storm-tossed sea 
level of Socialism the fertile fields of Co-operation are espied. 

SO far we have been engaged in studying the reforms which can 
only be attained through the law-making machinery of the 
State; we have also discussed the improvement of this machinery. 
Even the greatest optimist will agree with us that the hope of 
making an early progress on these lines, in any way commensurate 
with the pressing need, against the fearful power of plutocracy, is 
very slight. Whoever is in a position to know the intimate con- 
victions of the masses realizes that the prevision of a bloody revo- 
lution is spreading fast. A very bad sign, indeed, for when the peo- 
ple begin to despair of any improvement by peaceable methods, the 
beginning of the end is near; unfortunately an end which would be 
only the prelude to further battles. A co-operation for the destruc- 
tion of the old house might perhaps be obtainable, but a fearful 
fight would rage over the plans of a new building; meanwhile rain 
and storms would chill the shelterless. The danger is so imminent 
that it would be imprudent to rely on one single method. The work 
in the political field does not exclude action in another direction, 
where we can beat the adversary with his own weapons. Meeting 
combination with co-operation, we must oppose to the Trusts co- 
operative production and distribution; to the money monopoly, the 
organization of credit; to the capitalist's banks, the workers' Mutual 
Banks. 

The history of co-operative production has not been a very 
brilliant one. In fact, it is only since co-operative distribution has 
made such wonderful progress in Great Britain that we see a little 
advance in this department. This is easily explained, for the dififi- 
culty producers find all over the civilized world, in our epoch of a 
so-called overproduction, is not the organization of production, but 
the sale of the product. Where even experienced business men 
fail by the thousand, what can be expected from workingmen, who, 
however proficient they may be in their special work of production, 
have no experience of trade and its ramifications? Their means, as 
a rule, are too limited to command business talent of a high order. 
Their experience is too small to effectively control the commercial 
manager and to avoid the fate of that gentleman who, having sup- 
plied "the capital and his partner the experience for the concern, 
after a year found his partner had got the capital and he the expe- 
rience. 

It wanted the previous success of co-operative distribution to 



202 THE ECONOMIC AND SOCIAL I'ROBLEM. 

-supply the missing links: sufficient capital and custom to allow pro- 
duction full scope. Since 2,332,754 men and women, representing 
ten million consumers, have united in Great Britain to establish co- 
operative distribution with a joint capital of 160 million dollars, 
yearly sales amounting to 500 millions have been made, with a 
profit of 55 millions. (Report, 1906.) A market has also been 
opened for the products of co-operative labor. The result is that 
though we are only in the beginning of this branch of co-ojjeration, 
40 million dollars' worth of goods sold in the co-operative stores 
are manufactured by co-operatives. This does not include what is 
bought from co-operative productive societies, whose total trade 
amounts to about 25 million dollars. 

Yet close observers of the co-operative movement have lost 
much of the enthusiasm which they once felt for it. More and more 
we have seen distributive co-operation restricted to the sole pur- 
pose of reducing the cost of goods, with a complete blindness to 
the fact that an}- general success of this work might finally mcrel\- 
result in a fall of wages, hastened by the appearance in the labor 
market of the former traders thrown out of work. Cost of mer- 
chandise has been greatly reduced by even more powerful agencies 
than co-operative distribution ; and the result has been anything but 
beneficial to the masses of the population. The attacks against co- 
operative stores, therefore, are justified so long as their efforts re- 
main one-sided; so long as they are mainly directed towards the 
cheapening of articles of consumption. It would be quite different 
if the profits obtained were used to force on economic reforms in 
the direction of creating employment and consequently raising 
wages. If the fifty-five million dollars yearly profits made by British 
co-operators, instead of being distributed as dividends, were used 
to purchase land for tlie co-operators, as many as fifty thousand 
workers, or a population of a quarter of a million, might be settled 
ever\- year, relieving the labor market in a double way: (1) by 
changing laborers into farmers: and (2) by increasing the demand 
for co-operative products in exchange for farm produce. Co-opera- 
tion could then make use of a powerful weapon for the increase of 
its circle, so as to make it embrace the bulk of the nation within a 
measurable time. This weapon is Exchange-Banking. Let us first 
understand the general features of the system. 

Exchange-banking, or scientific barter, tries to combine the 
advantages of the monetary system with those of barter, or rather it 
tries to secure the benefits of money as a means of universal barter, 
v.ithout the obstacles which it puts in the way of exchange. In its 
n;nst ])rimitive form, that adopted in Robert Owen's labor ex- 
changes, as far back as the thirties of last century, and in De Ber- 
nardi's .American labor exchanges, founded about thirty years ago, 
but disappearing after a decade or two, stores are organized in which 
goods are deposited, or at whose disposal labor is offered, the pay- 
ment not being made in money, but in orders payable in the goods 



CO-OPERATION. 20."? 

and labor offered by the store. As salable labor is also a mer- 
chandise, I shall in this chapter include it in the term "goods" for 
simplicity's sake. Each depositor pays himself with the goods of 
another depositor, the orders through which this is accomplished 
becoming the money of the circle. 

A great improvement on this plan was that of the great French- 
man. Pierre Joseph Proudhon. His "Banque du peuple," which, 
unfortunately, remained in the embryo state, was to issue the orders 
to all who held goods at the disposal of the bank, and who thus 
could pay themselves in turn by the goods of other members. The 
store was extended so as to include all the stores of the members, 
in fact, all their productive and trading power. It was Proudhon's 
ambition to so extend the circle that it would gradually embrace the 
whole of France. This is best evidenced in the Memorial which he 
addressed in the year 1855 to the Prince Napoleon in regard to the 
use to be made of the Palais dTndustrie. (Appendix to "Theorie 
de la propriete.") He wanted to establish there a permanent exhibi- 
tion of all producers of the country where orders could be accepted 
(and, I suppose, for certain not very voluminous goods, as far as 
stock went, also executed on the spot), the payment to be made in 
exchange paper issued by the organization, a paper which, through 
being payable in all the products of the country, was bound to have 
the full purchasing power of legal tender money. It is a great pity 
that this "wSociete de I'Exposition Perpetuelle," his best work, is so 
little known. Nothing else the great genius has produced shows 
him so little of a crank and so much of a practical man of business. 
In a masterly way he sketches the immense influence which such 
an institution would have on production and circulation, on interest 
and rent, on the waste caused by superfluous middlemen, and on the 
general distribution of wealth. Nothing is impracticable in the 
grand project, not even the enthusiasm of the author, who never for 
one moment flattered himself with the vain hope that the dreamer 
on France's throne would really accept his proposal. If the moment 
when the founder of the Bonaparte dynasty dismissed Fulton with a 
jest, addressed to his surroundings as to the impracticable project- 
maker, decided the emperor's fate by depriving him of the only 
chance he had of conquering England, we may say that the neglect 
of Proudhon's grand idea deprived the second Emperor for ever of 
the possibility to make France the first industrial and commercial 
power in the world, and to establish her national wealth on the most 
solid basis. 

Proudhon's agitation had at least one practical result: the estab- 
lishment of Bonnard's Exchange Bank at Marseilles in 1849 (Proud- 
hon had published his "Banque d'Echange" in 1848). In 1853 the 
business moved to Paris, where, according to Professor KarlKnies, 
in Credit, the turn over from 1854-55 amounted to 45 million francs. 
It still existed in 1897 under the name of "Comptoir Central de 
Credit," J. Naud & Co. (Naud was Bonnard's son-in-law). It not 



204 TWIi ECONOMIC AND SOCIAL PRORLEM. 

only existed but prospered. Its yearly publications showed a verv 
large list of firms who accepted the bank's exchange paper. This 
consisted of engagements backed by promissory notes, signed bv 
the members, who had accepted a credit from the bank to supply 
within a fixed term a certain amount of their goods or to pay in 
cash their notes deposited as collaterals. The credit was. of course. 
only, given in the shape of a loan to the members, consisting in the 
engagement of some other member, whose goods the borrower 
needs. A commission of from 3% to 5% was taken by the com- 
pany, which was not co-operative, but a stock company working fo) 
dividends. Its success proves to co-operators how important is the 
mine of wealth they have left untouched. 

The co-operators of Great Britain could at once make a success 
of the scheme. A co-operative currency could be issued by the 
Wholesale Societies of Manchester and Glasgow, differing from 
ordinary currency in not consisting of a special commodity like gold, 
or a promise to deliver gold on demand: but an engagement to di- 
rectly supply the things for obtaining which the present currency is 
finally used. Or. let us rather say, ought to be used, because ex- 
actly the fact that in many cases it is not so used, but is employed 
as an instrument for the exaction of usury, is responsible for most 
of the evils we are suffering. The notes issued by the Exchange- 
Bank department of the Wholesales would not promise to deliver 
gold to bearer, as otherwise the law against the issue of bank-notes 
would be infringed, but to supply goods to bearer at cash prices. 
Such notes can be issued in England up to forty shiljings without 
paying stamp duty. They would be made redeemable in any one 
of the different co-operative stores of the kingdom. • The stores 
would accept them readily, as they could pay for their purchases 
from the Wholesales with them. Those stores which are not yet 
members of the Wholesales would here find a strong inducement 
to come in. because the acceptance of the notes would mean addi- 
tional business brought to their doors. In a population of ten mil- 
lion, the members of the co-operative societies and their families, 
this currency, to a certain extent, would be as good as the present 
money, and they would be ready to accept as much of it in payment 
as they could pass on. They would consequently be ready to buy 
these notes from their employers for the cash received for wages, 
the onlv way in which, for the time being, the Truck Acts, made for 
an entirely different purpose, permit the transaction. The employ- 
ers, being able to pass on the paper to their employees, and also to 
buy with it from the stores any goods they required for their own 
use. would accept the paper from the Wholesales for at least part of 
the goods supplied. Manufacturers do anything in their power to 
obtain custom, and the Wholesales are large buyers and good pay- 
ers, to whom everybody tries to sell. 

It will be readily seen how an entirely new class of members, or 
customers, would thus be recruited for the co-operative societies. 



CO-OPERATION. 205 

Not only the manufacturers and farmers who accepted the notes for 
their goods would come in, but also those of their employees who 
are not already members; also many of the purveyors of these man- 
ufacturers, farmers, and employees, who are just as anxious to ob- 
tain orders, etc. All these would buy their supplies in the co-opera-- 
tive stores, if obtainable, while the stores would gradually extend 
their lines until anything could be obtained from them at regular 
prices. The traders of the circle could even afford to pay a little 
more for the goods they buy with the new currency, because every 
such purchase means a corresponding sale of their own wares. 
What store would not rather pay 5 per cent, more for a merchan- 
dise, if the purveyor agrees to take in payment goods on which 15 
per cent, net profit is made? In the same way, all who sell to the 
Wholesales for Exchange notes could afford to give better terms 
to those who accept the paper from them, their own purveyors and 
wage workers. The latter would obtain the additional advantage of 
a greater security of their positions. Their acceptance of the notes 
would ensure to the employer a corresponding custom, and conse- 
quently enable him to keep them in preference when other em- 
ployees are dismissed because cash business is slack. 

In this way, the co-operative circle would rapidly increase, until 
it would gradually monopolize the greater part of the home trade, 
until most producers and most consumers of the kingdom would 
form part of it. The amounts of the new currency thus kept floating 
would then exceed that of all the present banks of the country. 

The interest saved by the co-operative societies through the 
use of their own money and the profits made through the addi- 
tional sales brought about by the new currency need not be paid 
out in dividends. The new members thus brought in do not come 
to get dividends, but because their acceptance of the paper procures 
them employment or custom. The extra profits thus made could 
be used for the development of co-operation, for its redemption from 
dividend-grabbing, and finally to the establishment of a Co-operative 
Commonwealth, in which anybody willing to work would find paying 
employment of the sort best adapted to his capabilities. Then co- 
operation would be looked at in a different light by the private 
trader, who now must be its enemy as long as it only deprives him 
of a living, without at the same time offering him the chance of a 
better one, with which the new system would supply him. 

My own efforts for an experiment in this direction were made 
m vain. In the years 1896-7 I lectured in a number of British co- 
operative societies, wrote in their organ, the Co-operative News, and 
spread a booklet, "The Real History of Money Island," in which I 
gave the imaginary history of an England as it would evolve through 
the adoption of my plans. I showed how the Trades-unions con- 
cluded to push the acceptance of the new currency among their 
members, to whom the co-operative societies supplied it for the 
purpose of starting co-operative production, a weapon found far 



206 THE ECONOMIC AND SOCIAL PROBLEM. 

more practical than tlie exploding strike revolver, which as often 
hurts the marksman as it hits the target. Gradually in this way the 
workers produced for themselves all they consumed, and in using 
part of the profits for the purchase of land made cheap through their 
refusal to work and live on the land of private owners wherever they 
could get land of their own co-operatively, they gradually rendered 
themselves independent of land owners as they had freed themselves 
of the capitalists. The two congresses which yearly met to fix prices 
and to debate questions of common import: the congress of the pro- 
ducers and that of the consumers, consisting of the same parties in 
their two capacities, gradually became the parliament of the coun- 
try; general well being and happiness were attained, with universal 
peace and general disarmament, following the adoption of the sys- 
tem in other countries, and all other blessings which any decent 
Utopia is in duty bound to paint in giowing colors. The great 
social revolution was thus peaceably carried through. 

The Real History proved that I did not make any particular 
impression on conservative co-operators, and I left England for her 
youngest colony, New Zeal'and, there to try the work independently. 

If the co-operatives had taken up the plan the element cf risk 
would have been reduced to a minimum, the risk that members be- 
come insolvent and fail to honor the society's orders. How incon- 
siderable this risk would be, even where the exchange-bank is or- 
ganized by the ordinary trade, can only be realized when we fully 
take in the basis of Proudhon's plan: the substitution of merchandise 
credit for money credit. 

We all know the great difference between the two credits. There 
is hardly anybody so poor that he is entirely deprived of merchan- 
dise credit, or is not giving it to somebody else. In fact, the poor, 
as a body, grant commercial credits besides wdiich those given by 
some of the largest commercial concerns dwindle to a mere trifle. 
The wage workers deliver their merchandise, i. c, their labor, on 
credit and get paid onlv after a certain time has elapsed. If only 
150 million wage workers all over the world have to wait for pay day 
on the average not more than half a week, all the year round, and if 
we average weekly wages at only three dollars, the sum thus con- 
tinually credited by the workers to their employers amounts to 225 
million dollars. In reality this credit is partly given, not by the wage 
workers, but by their own creditors, the boarding-house keepers, 
retail dealers, house owners, etc. There is hardly a worker so poor 
but he finds one of these parties giving him credit for the necessaries 
of life until pay day comes round. And going up higher in the circle 
we find numerous dealers and manufacturers, who could not raise a 
dollar at their bank, owing thousands for goods of some kind sup- 
plied to them on credit, and who could easily obtain many thousands 
more from the only too-zealous salesmen, who call on them and 
move Heaven and earth to obtain orders. 

Now let us consider that, after all, what we now call nier- 



CO-OPERATION. 20/ 

chandise credit is in reality a money credit, for, as a rule, goods are 
rhade payable not in goods, but in legal tender money; a money 
which, as we have seen in Chapters III and IV, is practically unob- 
tainable in at least nineteen cases out of twenty when it is wanted. 
That under such conditions this indirect money credit is so easily 
obtainable can only be accounted for by the very intensity of the 
struggle for the scarce means of exchange, without which existence 
is imperilled. It is the life belt which alone can keep the swimmers 
above water; and for the majority, the sale of goods or services is 
the only way of obta'ining this belt. 

To efifect such sales every nerve is strained; great risks are 
taken; and where cash sales are impossible credit is offered. Never- 
theless, the risk is too great not to interfere seriously with the gen- 
eral exchange of goods and services. Proudhon and his successors 
recognized that this strangling of exchange was due to the intrusion 
of money, an intrusion which forces all trade through the narrow 
gate of money and credit. Hence they proposed to substitute the 
merchandise prom.ise for the money promise; the merchandise paper 
for the money paper. 

In our present system of currency we discern an ever-growing 
disproportion between base and superstruture; in the suggested sys- 
tem we have a never changing relation between the two, and thus 
an end of the danger due to their disproportion. The Exchange 
Bank, by giving to merchandise money wings and making the mer- 
chandise note take the place of the money note, creates a new 
money credit which at the same time is a real merchandise credit. 
Of course, it is money credit only in a limited sense, for real money 
is accepted by everybody, while the m-crchandise money is accepted 
only in a certain circle. The more this circle extends, the more its 
money will, to every end and purpose, resemble real money. The 
form of the exchange note may be various; in New Zealand I 
mostly adopted that of the bank-note, with the following text: "The 
holder of this note is entitled, on or within a reasonable time after 

presentation, to goods or services to the value of from those 

members of the New Zealand Commercial Exchange Company, 
Ltd., who are liable to supply goods or services." If new issues 
were made, the words "or within a reasonable time" could be left 
out. In the case of purchases made with ordinary money, goods 
cannot always be at once forthcoming when the money is tendered. 
If we order a suit of a cloth which has first to come from a distance, 
all the treasures in the world could not produce it at once. I had 
put in the provision only in order to guard against any confusion 
with the terms valid for our ordinary bank-notes and checks. The 
goods promised in these — gold coins — have to be handed over the 
counter at once, though it is just as impossible to carry this out, if 
demanded by all creditors, as it is for the tailor to supply at once 
a suit ordered to measure. 

Experience has since made me prefer the check form, as rec- 



208 THE ECXiXdMIC AXf) SdCIAI, ]'R()BLEM. 

ommended by John Armsden in "Value," preserving only the small 
bank-notes for change. My reasons are: 

1. The company ought not to rely on the interest demanded 
from the debtors as a revenue to pay current expenses. Our fight 
must be again.-t interest, and we ought to make the interest charge 
as low as possible, after a sufficient reserve fund has been obtained. 
The revenue necessary to pay expenses ought to be mainly derived 
from a commission on the turnover, as in Owen's labor exchanges, 
though a much lower percentage than his — 8^%, a penny for each 
shilling — could be demanded. Now, it is impossible to control the 
turnover of members where the goods are sold, not in the store of 
the company, but in the member's place of business, if the payment 
is made by means of notes to bearer. Only when the payment is 
made with checks, not transferable, which the member who re- 
ceives them has to bank directly, can the turnover be controlled. 
Of course, the bank must insist on having the, name to whose orde'/ 
the check is made out filled in in the same handwriting as the rest 
of the check, to avoid the leaving open of such name, so as to 
change it into a paper on bearer for the purpose of saving commis- 
sions. Evasions are punished by exclusion. 

2. Only in this way can the bank prevent outsiders from reap- 
ing without charge the benefits enjoyed by members, and only thus 
can exclusion, the most powerful weapon to keep members up to 
their engagements, be made effective. 

In the commencement of a new undertaking like this, confidence 
is everything, and checks are more likely to inspire it when drawn 
by somebody known to the receiver; though the guarantee they 
give is not greater than that given by the notes to bearer. The two 
forms of exchange paper only certify that bearer is entitled to re- 
ceive goods from those members liable to supply these goods be- 
cause the owner of the paper or the party from whom he obtained it 
has supplied such goods to others, or is at any time ready to do so. 
The text of the check might read: "Exchange Bank: Deliver to 
Mr. X. $ in merchandise, to the debit of Y." The bank cer- 
tifies checks on demand, if in order. The company has no capital 
beyond its reserve fund to make good any failure of members. In 
case of losses exceeding the income from commissions, interest and 
the reserve fund, higher commissions would have to be charged to 
make good. However, it is supposed that — as has proved the case 
in practical work, even with the discouraging circumstances under 
which this work was done — though outsiders may force a member 
into liquidation for cash debts, the Exchange Bank itself will rarely 
have to resort to such extremities. For every hundred men who 
have to suspend payment because a certain vellow metal is not ob- 
tainable, not one would refuse to supply goods (or labor) for his 
debt. The very fact that there is not enough demand for these 
croods is responsible for the activity of our courts of bankrupt^-. 
The risk of loss through insolvency of the members decreases still 



CO-OPERATION. 2O9 

more with the extension of the circle, because the exclusion from 
the membership, the ultimate consequence of any non-fulfilment of 
engagements, might spell total ruin for tiie member. Each would 
use his utmost efforts to make good sooner or later. We must not 
forget the great difference between the Exchange Bank and the or- 
dinary m.oney-bank. The latter merely supplies money to its cus- 
tomers wherewith to buy goods or make payments of any kind; it 
does not insure that the money thus paid out will come back to its 
spender to purchase goods from him. The Exchange Bank alone has 
a right to say (what was mere nonsense on the part of Adam Smith) 
that "Money necessarily runs after goods, but goods do not always 
run after money." (See chapter IV.) Exchange money is not a 
merchandise by itself, as ordinary money is, but only an order for 
merchandise, which sooner or later will be presented by somebody 
to the party who issued it. Or, to be quite exact, for the order 
which he puts into circulation some other order will be presented 
to him, so that buying also means selling. Any acceptance of an 
exchange-note (or check) means the compulsion to spend the same 
amount in the circle, for the notes are cashed only in this way. Each 
note becomes an active propagandist for the system, better than any 
advertisement could be. To present the whole system and its ef- 
fects clearly to the mind of the reader, it may be useful to reprint an 
explanation I gave in my "Pioneer of Social Reform.," the organ of 
the N. Z. Exchange Bank, or "The New Zealand Commercial Ex- 
change Co." I have made a few slight improvements: 

"The Commercial Exchange Company is a society whose mem- 
bers are men of different trades coming together to do business with 
each other. They are grocers, butchers, bakers, tailors, shoemakers, 
farmers, and so forth, who need each other's products; but barter, 
the simplest way of getting them, is out of question. Barter may 
do between two parties of whom each needs what the other wants 
to get rid of, but not between a hundred, of whom number one 
wants what number two can spare, number two what three wishes 
to dispose of, and of whom finally only number one hundred has 
any use for what number o"e offers in exchange. Under such cir- 
cumstances, a medium of exchange — money — is necessary to pass 
from one to the other until it returns to the party who began. 

We all know how our butchers, grocers, tailors, shoemakers, 
etc., obtain this medium of exchange at present, if they are not 
fortunate enough to own it through having received it in payment 
before they needed it. They go to a bark or a loan office and bor- 
row certain pieces of a yellow metal, called sovereigns, or, in reality, 
they obtain the privilege of drawing little paper scrips, named 
checks, with which they pay each other, until finally, after a check 
has passed from number one to number two, from two to three, etc., 
and number one hundred has paid a check to number one. the latter 
recoups the original bank. For the right of drawing these paper 
scrips the parties pay an interest tribute to the bank, and are only 



:;I0 THE ECONOMIC AND SOCIAL PROBLEiil. 

too happy if they are allowed to do so; for the banks are very par- 
ticular, and do not allow everybody the privilege of a credit, but 
only to those who can supply sufificient security that they will repay 
the loan at any time at which the banks demand it. If the banks do 
not obtain such security they will not give the loan; they will not 
allow the parties to draw the little papers unless they have paid in 
a corresponding number of the yellow coins called sovereigns, or 
their substitutes: principally checks certified by other banks. 

This IS the way in which things have been going on for some 
time now, and have been getting more unpleasant the more pros- 
perous the people became. This sounds strange, but it is a fact, 
nevertheless; for the greater prosperity of the people resulted in a 
more extended trade, and this trade extended much faster than the 
stock of yellow pieces, or — what amounts to the same thing — of 
gold bullion which the Mint coins free of cost for anybody. This 
had the natural result that it became more and more difficult to in- 
duce the banks to allow the drawing of the paper scrips called 
checks, for the danger grew that such scrip-drawing without a pre- 
vious deposit of the yellow metal might result in general bankruptcy 
of the banks and their debtors, for paper scrips are only accepted as 
long as the people believe that sovereigns can be obtained for them. 
The very moment there ib any doubt about this, nobody wants the 
papers, but everybody will insist on receiving gold, often even re- 
fusing other kinds of scrips called bank-notes, which in some coun- 
tries differ from the checks only in being drawn on the banks by 
their presidents, and payable to anybody who presents them at the 
banks, without their subjecting him to the trouble of signing or 
proving his identity. Here, in New Zealand, the stock of gold in 
the bank vaults amounts to only one-fifth of the deposits, that is, of 
the amount of sovereigns due to parties who have brought sover- 
eigns, or an order for sovereigns to the banks; and this does not 
include the debt to the holders of bank-notes who also have paid in 
gold for them, nor does it include the debt of the savings banks. 
Including these the relation is only one-eighth. A very favorable 
proportion ; for in April, 1907, in the United States, it was only one- 
twenty-sixth. 

Now, the very moment these depositors become afraid that 
they may not be able to obtain the gold due to them, they will at 
once call for it, and as the brr.ls rre well aware of the danger thus 
threatening them (this threat has often turned into a reality) they 
become more particular about giving credit, the more th.e excess of 
scrip circulation over the gold stock increases. We have such a 
period just now, f6r trade has increased very much all round, while 
the gold stock has relatively diminished. Consequently, the de- 
mand for the paper scrips had to increase also, because without 
them no trade is possible, as sovereigns are too inaccessible to 
keep up our trade for a single day. The greater the demand, the 
greater the danger that the small gold stock might be depleted, and 



CO-OPERATION. 211 

the more particular the banks are about giving credit, even at a high 
rate of interest. In this way it comes about that of all those people 
who want to trade with each other, a great many cannot obtain the 
right from their bank to draw the checks they need to pay each 
other, and many cannot even get a loan from the loan offices. If 
they do, they have to pay interest up to 60 per cent. 

Now, these people, or a certain number of them belonging to 
different trades, meet in their club, called the Commercial Exchange 
Company, and say to each other: "Are we not great fools? Why 
do we go to the banks and usurers to obtain the right to draw 
paper scrips upon them, to pass them from one of us to the other, 
and finally to the banks again? Why not agree to draw those paper 
scrips upon ourselves, and to hand them back to ourselves? It may 
be done in a very simple way. We first appoint a number of trus- 
tees whom we name the Board of Directors. These print scrips 
somewhat like the banks' scrips, called checks and bank-notes, only 
with the difference that these scrips are not payable in gold sover- 
eigns, but in the goods (and services) which the members require 
from each other. In reality, the present scrips of the banks are 
nothing else for most of us, for we take them, not because we want 
gold for them — in fact, we take them though we know that if it came 
to the pinch we could not obtain the gold — but because we know 
that those whose goods we recjuire take them in payment. Now, if 
tliis certitvide is all we need, what remains to be done is that we 
agree to accept our own scrips, and then we can borrow these scrips, 
or the right to draw them, from our trustees, and repay the trustees 
when we have received other scrips from members of the club. All 
we have to do to feel certain that we can safely accept the scrips 
from each other is to instruct our trustees to make sure that no 
member obtains the scrips on credit, unless we can absolutely rely 
upon his supplying goods at cash prices for scrips when some one 
of us calls on him for such goods. Of course, we shall give him a 
reasonable time for this delivery, because such time is given even 
where we come with sovereigns in our pocket. With millions of 
cash money in our possession, we cannot claim a pair of boots made 
to measure, at a moment's notice, but must give the necessary time 
to make them. 

Here we have the whole secret of the Commercial Exchange 
Company. Its members supply to each other a means of circula- 
tion with all the qualities of that at present in use, merely omitting 
the roundabout way of occasionally claiming gold pieces, which in 
most cases are only wanted to pay for the goods which our papers 
promise directly. Thus we not only avoid the interest-tribute due 
to the owners of the gold pieces, but the danger inherent to prom- 
ises of things which to a large extent do not exist. The task de- 
volving on our trustees, of making sure of our members' solvency, 
is easy, when compared with that undertaken by bank managers. 
The most cautious of these cannot always avoid disaster> for no- 



212 THE ECONOMIC AND SOCIAL PROBLElVr. 

bodv can he sure of always being able to deliver things, the stock 
of which is too limited to go round. Our trustees are under no 
such difficulty, for the productive power of our members will always 
exceed the demands upon it. Tlie general complaint of "Over-pro- 
duction" shows that our trouble is not want of productive power, 
but the difficulty of selling the products. This difficulty will be 
much lessened when selling is no more exchange against a scarce 
commodity coined into certain round pieces of which not nearly 
enough can be obtained to satisfy the demand, but exchange against 
the products of others. With the lessening of this difficulty, the 
principal cause of failure in business vyill be out of the way. Hon- 
esty, capacity, and freedom from dangerous outside debts, will be 
the only criterions required by the trustees — by the Board of the 
Commercial Exchange Company — and the danger of loss by fail- 
ures will be reduced to a minimum, for which a sHght risk premium 
paid by the borrowing members will provide. 

We hope that this explanation will make clear to every one 
desirous of information what the Commercial Exchange Company 
really is. It is a club of producers and traders founded to furnish 
each other with a means of exchange, a set of counters and a mu- 
tual credit, jointly secured, for the purpose of enabling them to trade 
with each other. There is nothing to prevent our club from grad- 
ually embracing all members of the community, and it is in the in- 
terest of every member to help to extend the circle so as to have it 
finally embrace all trades, so that anything wanted by the members 
can be supplied in mutual exchange. Then it will be the affair of 
the members to decide whether they wish to continue the club in its 
present form, or whether they prefer to merge it into that other 
club called the State of New Zealand, making of the old club a de- 
partment of the larger club under the name of 'The State Bank of 
New Zealand.' " 

Another extract from the same paper may serve to illustrate 
how the system works in practice. It is entitled, A Co-operative 
Bacon Factory on Exchange-Bank Principles. 

"More subscriptions are just now solicited for the Co-operative 
Bacon Factory at Woodville, more capital is required to purchase the 
full amount of hogs which the institution can cure. Naturally, it 
pays better to keep the establishment going at full speed, and so it 
seems a matter of course that r.ore money is needed for the purpose. 
At first sight, every business man must approve of the proceedings ; 
and yet, when we investigate them carefully, we shall see how 
unnatural the whole thing really is, and how little the shareholders 
of this Co-operative Society are possessed of the co-operative spirit, 
the spirit of mutuality. If they really appealed to this spirit they 
would find at once how unnecessary it is for them to solicit new 
subscriptions for the purpose. Would there be any idea of raising 
more money if the farmers who supply the pigs took bacon in pay- 
ment? Certainly not. In this case, the whole transaction v^ould be 



CO-OPERATION. il3 

reduced to a simple booking operation. It would provoke laughter 
if the Bacon Factory tried to raise cash to pay the farmers for the 
pigs, and then demanded the farmer's money for the bacon. 

"Does the case change when one more member is added to the 
circle, when the storekeeper takes the bacon from the farmer, and 
the farmer takes his groceries from the store? It would be just as 
riduculous for any of the parties to borrow money for the trans- 
action, for .there might simply be two separate barters, the one be- 
tween the farmer and the factory of pig for bacon, and the other 
between the farmer and the store of bacon for groceries. Or if the 
process is simplified by the storekeeper's taking the bacon direct 
from the factory, the farmer might pay for his groceries by means 
of an order on the factory for the amount due to him for the pigs, 
and the storekeeper pays his bill at the factory with the farmer's 
order. This way of doing business, however, becomes a little less 
easy when another member is added to the circle. Let us suppose, 
for instance, that a wholesale grocer X, at Wellington, is the buyer 
of the bacon. In this case, X might give to the factory an order on 
the storekeeper Y, who buys his groceries from X. Y pays the order 
by one on the farmer, his cu.stomer, and the factory passes on the 
order to the farmer to pay for his pigs. Still no money is needed, 
but there may come in more links in the chain of trade between the 
parties; so that finally the buying by orders of this kind becomes 
absolutely impracticable. To provide for this difficulty the Co-op- 
erative Society called the New Zealand Commercial Exchange Co., 
Ltd., has been founded. It is nothing but a clearing-house between 
its members, under their supervision, exercised by a board of their 
own selection — a selection made on the most democratic system: the 
Hare proportional vote. Let us see now how the parties would deal 
with each other under this system. To begin with, the factory would 
become a member of our company, and would borrow our exchange- 
notes to buy pigs with, or draw checks on us on credit. It would find 
no difificulty in placing the notes or checks among the farmers for 
pigs, provided it can satisfy the farmers that the country stores will 
accept the paper. This is easily accomplished if one single store in 
a section is won over ; for, in that case, the others are bound to fol- 
low suit if they do not wish to lose the custom of the farmers. The 
stores only want the certainty that they can pass on the paper in 
their turn, and this certainty will be given them by the wholesale 
grocer who is ready to accept the paper for groceries ; because he 
purchases the bacon from the factory, and can pay it with the paper, 
which the bacon factory can either pay back to us, or, by passing it 
on again to the farmers for pigs, begin the same circulation over 
again. 

"Every one of the four parties here concerned has benefited by 
the operation. The factory has obtained cheap money, and a cus- 
tomer who will do all in his power to sell the co-operative bacon, 
because the more he sells the more gfroceries can he sell to the coun- 



214 THE ECONOMIC AND SOCIAL PROP.LENf. 

try stores, who otherwise might give their custom to others. The 
storekeepers Hkewise are sure of obtaining a custom which, in many 
cases, would have gone elsewhere. The farmers do well, because 
they have a certain sale for their pigs at remunerative prices, for 
there will be'no cutting in the circle as in cash business. The reason 
for this is a very simple one. Cash can only be obtained in the 
world's market, and this market sufifers from an excess of a demand 
of cash over the supply, with cutting of prices as a natural result. 
When this money is eliminated, and when goods are bought with 
goods, as in our exchange circle, business improves. 

"Every purchaser with our paper necessarily obtains a customer 
who pays with the paper. He is certain of making a profit on a 
sale, and therefore can afiford to pay well for what he buys. There 
is no need of cutting in such a case ; 'Live and let live' is the motto 
of all members of the circle." 

To show how wage workers could benefit by their membership 
in the Exchange-Bank I reprint the following dialogue from "How 
to do Business without I\Ioney," published by the New Zealand 
Commercial Exchange Co. in 1899. 

"Question. Your Exchange may, perhaps, increase the income 
of the employers, but how can it benefit the wage worker? I can 
understand why he favored De Bernardi's American Labor Ex- 
change, an institution in which, if he found no employment, he could 
directly sell something he produced, and make himself paid by the 
produce of other workers; but in which way is your system to help 
him? 

Answer. Certainly the advantages of the American plan are more 
obvious to the worker, though I cannot under.stand how it can bene- 
fit the great mass of workers, who do not see their way to produce 
on their own account any goods for sale, but have nothing else 
before them than to work on wages for an employer, if they find 
one. You also must see that De Bernardi's combination of store- 
keeping with exchange banking has fastened a heavy clog on the 
system which makes it almost unfit for a wider application. Our 
method is free from this incubus, and by interfering as little as pos- 
sible with the existing business systems, by adapting itself to the 
present machinery, it opens the path to an easy and speedy victory. 
What could a New Zealand wage worker bring into the Labor Ex- 
change if we adopted the American system? A few shoemakers 
might bring shoes, but they would not find any leather in the shop, 
because tanning needs too much capital to be undertaken by work- 
ers who have nothing but their hands. We are past the primitive 
methods of production, in which such a system might have directly 
benefited any worker. To do any real good we must adapt our- 
selves to the complicated systems of the twentieth century, or we 
are doomed to that failure which finally overtook the American 
Labor Exchanges. 

And now I am going to show you how a wageworker can get 



CO-OPERATION. 21 5 

the benefit of his membership in the exchange bank on our system. 
Let me suppose you to be a shoe manufacturer, totally unacquainted 
with our institution, and me, a wage worker, out of employment, 
but a member. _ I come to you and want work, and the following 
conversation ensues: — You: "Have no work; sent off already sev- 
eral applicants to-day." /.• "Yes, because they wanted money from 
you; I do not." "No money? You do not mean to say you work 
for nothing?" "Certainly not, but I take shoes in payment." "What 
can you do with them ? You cannot open a shoe shop ; besides, 
the Truck Law does not allow me to pay you anything else but 
money." "I know. I mean that I at once repay you your money, 
and buy an engagement from you that you will furnish your 
goods at regular prices for the amount I paid you to anybody who 
comes wath my authorization." "I would be perfectly willing to do 
that, and to give you permanent employment on such terms, even if 
you want to keep some of the money, because the only reason I 
could not employ you before was that I had little money, but plenty 
of boots and shoes. Yet I cannot see how you can manage to sell 
your order for boots and shoes." 

And now I explain to you the organization of our Exchange, 
which enables me to pay for all I want with such an order for shoes. 
This order you give me in the form of notes or checks of the Ex- 
change, of which you become a member, accepting a credit on the 
force of your stock and the new goods produced by my work. 

But this is not the only advantage given by the Exchange to 
the workers if they join in sufficient numbers. The reserve fund, 
which will grow from year to year, could supply them with the capi- 
tal they may need to set up as independent producers. Their co-op- 
erative organization may supply the necessary security, and the prog- 
ress brought about by the Exchange system would put out of their 
way the present most serious obstacle to their success, the difficulty 
of disposing of their produce. In a market in which even the skilful 
and experienced business men often succumb in struggling for the 
scanty gold stock, the co-operating workers have a poor chance. 
Their commercial management is rarely as efficient as that of the 
capitalist. After the new currency has rendered it easier for a pro- 
ducer to sell his goods, co-operative production will thrive." 

To show how the business done through the exchange bank 
creates an absolutely new production ; that it does not take away one 
man's bread when it procures employment to another, as is often 
the case with the circulation based upon our monetary system, I 
might add that thousands of townworkers have to refuse fruit and 
vegetables to their children, whose health badly needs it. In conse- 
quence of this, farmers and gardeners, who need shoes and other 
products of labor, cannot buy them, because they cannot obtain 
money. Owing to this fact their, fruits have to rot on the tree, their 
vegetables run to seed, because there is no custom for them. The 
exchange bank puts both parties into communication and obtains 



2l6 THE RCONONtlC A XI) SOCIAF, PROBLE^[. 

employment for them, which otherwise would be unobtainable. By 
this it does not deprive anybody of his bread, but procures bread for 
all, by transforming^ latent productive jiower into a real one. 

I desire to call attention to another advantage which the bank 
gives to its members: it supplies an effective weapon against the 
Trusts, as it deprives them of their boycotting and discriminating 
power, visited upon those who buy from competitors, for it protects 
the competitor's contmuance in business, because the circle will give 
him its custom. I repeat that buying from a member in the circle 
means selling goods to others, and thus even a higher price is prac- 
tically cheaper to the amount of the profit made on the goods sold 
in exchange. Of course, the trusts might also join the society, but 
as unfair dealing entails exclusion, their continued membership 
would only be rendered possible by a renunciation of their tricks. 
Where the trust has no competitors in the circle the members can 
start such, with the help of their custom, for this custom is more 
important than the capital required, which is always obtainable 
where a sure profit can be shown. 

The circle needs no protective tarifif to insure full work to its 
members, for even if a foreign competitor sells cheaper, the 
society's producers will not lack custom. Its reciprocal system in- 
sures it. Importation by the circle will only be possible if, directly 
or indirectly, it is paid for by exportation, for only in this case is the 
circle's paper of any use to the importers who accept it in payment 
for foreign goods. The circle's system insures Reciprocity far better 
than any tarifif tinkering. I refer to Chapter IV, in which I have 
shown the fallacy of the free-traders' contention that goods are al- 
ways paid for with goods, and that therefore imports insure a cor- 
responding amount of exports. Our present money is an interna- 
tional commodity which may or may not come back to buv goods 
in the country from which it was obtained for goods. Our ex- 
change-paper, on the other hand, must come back; if it did not, the 
goods purchased with it abroad would have simply been given away 
for nothing. 

I cannot leave the subject without referring to certain diffi- 
culties in the way of an Exchange-Bank, or "INIutual Bank." as it 
is also appropriately called. In the first j)lace we have the danger 
of domination by wealth, the fate thus far of all great corporations 
in this country, a danger easily avoided by attaching the vote to 
membership and not to share capital, each member needing at least 
one share of the company, but no share by itself entitled to a vote. 
In this way outsiders who buy shares cannot vote and members 
cannot mcrease their voting power by purchasing more shares than 
one. By limiting the dividend to the usual percentage obtainable 
on capital there will be no great demand for shares on purely mer- 
cenary grounds. Tlie bulk of the profits would be used for 
strengthening the organization. Another danger, that of con- 
trolling general meetings by means of proxies, can be easily over- 



CO-OPERATION. 217 ' 

Come. A confirmation of all decisions made by the general meet- 
ing through a referendum of members voting directly by postal 
cards specially issued by the bank may be made compulsory at 
least in all important matters. The referendum, democracy's pro- 
tection against the representative, is also available to protect the 
stockholder against the proxy holder. If, besides, the directors are 
elected on Hare's proportional system, as described in Chapter VI, 
all the necessary safeguards against domination by capital will be 
supplied. This does not mean that plutocratic wrecking is thereby 
excluded. In fact, this is the point where the new institution will 
encounter its greatest difificulties and dangers, as my practical ex- 
perience in New Zealand showed. In that country I found that the 
greater the extent of a business, the more dependent it is on bank 
credits; and, though the exchange-bank could gradually free its 
members from money-bank credits, it cannot do so in the initial 
stage ; so that the fear of suddenly being called upon to settle with 
their banks kept the best firms from joining, who otherwise might 
have become members. This naturally had a discouraging efifect 
on others, and thus brought an element of weakness into the work. 
In the United States, where plutocratic influence is stronger 
than anywhere else in the world, institutions of the kind here pro- 
posed will meet with greater difficulties. The case of the People's 
United States Bank in St. Louis shows how these influences can 
set in motion the power of the State to get rid of inconvenient com- 
petition. Nobody would have imagined that the United States 
Post Office, an institution whose object is to serve communication 
without any regard of persons, could one day be used by plutocratic 
interests to ruin a bank which stood in their way. A simple decision 
of the postal authorities sufficed ; and against such a decision there 
is no appeal to the courts. The Crumpacker bill, which was passed 
with but one dissentient vote in the House of Representatives, 
would have terminated this absolutism; but it did not pass the Sen- 
ate, being kept back until the close of the session. The president 
of the bank was also the publisher of two monthly journals, with a 
combined circulation of two and a half million copies. To increase 
his affliction, this enormous business was suddenly stopped by Geo. 
B. Cortelyou, the Postmaster-General, by refusing their customary 
right to the mails at the lawful rate and subjecting them to an arbi- 
trary and ruinous postage. The bank was an enterprise in which 
more than three million dollars cash capital were invested, against 
which, in spite of all efforts, no illegal methods could be proved, 
and which was so thoroughly solvent that, in spite of the shameful 
persecution to which the Post Office subjected it and the enormous 
costs its defense involved, all its creditors were fully satisfied, and 
even the shareholders had their money almost fully paid back (87%). 
This enterprise was declared fraudulent and its officers were ex- 
cluded from the mails, so that even its president was isolated from 
all postal connection; not permitted to receive letters from his own 



2i8 THR K(.()XO\lir AND SOCIAF. I'RoP.LEM. 

mother. This is a sort of punishment not even inflicted on a con- 
demned murderer. And this happened, not in Russia, but in the 
United States, and in the 20th century! 

Well, the People's United States Bank was an innocent baby 
compared with an exchangee bank, so far as the interests of our 
existing banking- world were touched by it: for its only ofifense was 
the saving of check-cashing and money remitting expenses; whereas 
the exchange banks would put an end to a considerable part of the 
turnover made by our present money banks. 

While this book is being prepared for publication a long ex- 
pected event occurred, which on the one hand must bring an acces- 
sion of strength to exchange banking, while on the other hand it will 
diminish the antagonistic influence of money banks. The financial 
crisis, foreseen in these pages, came over us suddenly, with ele- 
mentary force, and with it a host of explanations, out of which I 
select one, because it will specially amuse those who have so far 
followed me. Its author is Frank Arthur Vanderlip, who enjoys 
in this country some reputation as a financier. According to him, 
the crisis is explained by the enormous loss of capital the world 
sustained during this decade by the Boer and Russo-Japanese wars, 
preceded by the American war with Spain, and followed by the San 
Francisco earthquake and fire. This shows that even the "chiefs" 
of our financial world have no true conception of the real nature of 
this crisis. 

What sort of capital was destroyed in the catastrophes men- 
tioned? Evidently only the products of agriculture and industry. 
But what is the main signature of the crisis? Clearly, in the first 
place, the want of pay;,.?g' employment in the domains of produc- 
tion. Consequently, accoroing to Mr. Vanderlip, the ex;ceptionally 
great demand for the products of labor that followed the destructive 
events mentioned is the cause — not that, ar every person with some 
common sense would guess, there must be an extraordinary de- 
mand for labor of all kind — but that demand for labor and its prod- 
ucts has decreased. Isn't that wonderful? I hope I need not men- 
tion that it is absolutely indifferent which products of labor have 
been destroyed, for there is not a single one — beginning with arti- 
cles of consumption, including war materials, and ending with the 
tools of production — for which producers would not be most happy 
to obtain more orders. Then wliat kind of capital can be meant by 
Mr. Vanderlip? Money? Now. I cannot conceive in which way the 
events mentioned could have destroyed money. Much money has 
changed hands, and in this change of hands the United States, who 
to a large extent had to supply the destroyed goods, especially food 
materials, for which they received money or its equivalent, have 
certainlv not been the losers. Besides, it is well known that during 
the decade in question the world saw such an unprecedented in- 
crease in the producti':^n of the yellow metal that many attributed to 
it the rise of prices and talked about another change of our standard 



CO-OPERATION. iic) 

6f value. In which way, then, can the events referred to have caused 
the crisis? 

As a matter of fact, the very contrary is true; these events, in- 
stead of causing the crisis, actually postponed it. Without them, it 
would have arrived long ago; because the turnover of the world in 
merchandise of all kinds has more and more run ahead of the money 
stock, so that credit had to supply the means of exchange in ever 
growing measure. The cash extracted from hoards by the new war 
loans and San Francisco insurances increased the money circulation 
and expanded credit, which brought about and kept up a great busi- 
ness revival. If we study the history of crises we find that they often 
break out two years after the termination of a costly war, not as con- 
sequence of the war, but because the increase of circulation due to 
the war, which for a time had postponed a crisis, became exhausted 
after two years. On this ground I predicted the present crisis for 
August, 1907, two years after the peace of Portsmouth, and was only 
two months wrong. 

There was no need for such far-fetched explanations of what 
brought on this crisis as Mr. Vanderlip's. It required a continual 
presence in the midst of Wall Street's skyscrapers to lose the free 
outlook over the financial worW to the extent exhibited by this bank 
manager. Otherwise the gentleman would not have needed arti- 
ficial explanations to realize that where the banks owe thirteen thou- 
sand milhon dollars, with only one thousand million behind the debt, 
of which not quite one-half consisted of legal tender coins, a mere 
breath of distrust must bring about a downfall of credit. It was not 
alone the increase of the turnover which can be made responsible 
for such abnormal conditions. Speculation in watered stocks and 
bonds had its goodish share in the enormous excess of deposits over 
the cash stock. The ovv^ners of these water papers borrowed on them 
from the banks, and though only a part of the quoted value was 
taken into account, still the sum by far exceeded the value which 
remained after the crisis press had begun to squeeze out some of 
their watery components. The amounts thus borrowed formed a 
considerable part of the deposits, for which real money had never 
been paid in. They actually only formed water foam that had con- 
densated into gold debt. Unfortunately, no matter what formed the 
origin of this part of the banks' debts, they had the same claim upon 
the attenuated gold stock which the real depositors were entitled to. 
And, still more unfortunately for the latter, these foam-born deposits 
belonged to experienced financiers, who, knowing the watery origin 
of their own credits at the banks, for which no real money had ever 
been paid in, fully understood the danger thus threatening all de- 
positors. Thus they were among the first who called for their 
money, or rather that of the real depositors, who, as a rule, were less 
hiitiated into the state of things and consequently came too late. 
The latter had to be content with clearing house and cashier's cer- 



220 tHE ECONOMIC AND SOCIAL PROBLEM. 

tificates, those illegal forms of paper money wlvch were the product 
of the crisis.* 

It can easily be seen that all this materially changes the pros- 
pects of exchange banks. The reputation of their enemies, the 
money banks, has not only sunk in consequence of the lending 
manipulations just described — in which not merely the New York 
banks participated, but directly and indirectly many of the other 
banks of the country, who lent their legal reserves at a high interest 
rate to Wall Street's water-born paper, but the banks have deprived 
themselves of their best weapon. This weapon, the appeal to the old 
superstition that only paper backed by cash has a right of circulation, 
has perhaps never been used with less right than by those who made 
13,000 million gold debts upon a backing of 500 million cash and 
500 million of bank notes, guaranteed by the government, the basis 
of the check circulation of this country. But, as if this were not 
enough, the banks have added another weapon to the arsenal of their 
rivals by the issue of those money-substitutes, unknown to the law, 
just mentioned, the clearing house or cashier's certificates, of which 
millions circulated. The partisans of exchange banking have a per- 
fect right to say that their paper is based on a far surer foundation 
than the scrip just mentioned. Exchange paper is based on real 
goods held ready for it, while the bank's certificates practically have 
no gold behind them. This must finally lead to the failure of the 
promising party. All business based on them leads through the 
narrow gold door; while the promises of the exchange bank 
are built on the productive power of able men, whose solvency is no 
longer exposed to disastrous shipwreck on a hidden gold rock. At 
all events, though the chances are greatly improved, a severe battle 
can hardly be avoided, and a strong reserve fund will be found of 
great importance to the new institutions. 

The commission on sales and the interest on loans ought 
to be fairly high, in the beginning, to collect a good reserve 
fund; but as this fund is mostly supplied in goods held at 
the disposal of the bank, it will have to be turned into cash 
with the help of disinterested friends, who only deal with the 
circle to help the work and purchase exchange-paper for cash, or 
open an exchange-bank account by paying in cash, which then is 
redeemable in exchange-checks only. Officials with cash salaries, 

* These certificates were not promises to pay money but engagements 
to accept them as money, as the following copy of one shows: 
"Los Angeles Clearing House Certificate. 

No. Los Angeles, California, November 5, 1907. 

ONE DOLLAR 
Securities having been deposited with the Clearing House Committee of the 
Los Angeles Clearing House Association, this certificate will be accepted 
for the sum named by any of the Banks composing said Association or any 
Bank clearing through a momlier thereof. 

J. A. GRAVES, President. 
V. H. HOLLIDAY, Vice-President and Secretary." 



CO-OPERATION. 221 

independent men living on their incomes, may choose this way of 
establishing better conditions. The larger the cash fund, the more 
able the bank will be to help those members whose adherence may 
subject them to attacks from the money power. Attacks most elTect- 
ive in the commencement, through the necessity of paying rents, 
taxes and freights in cash, until the circle has extended so far that 
its paper is taken everywhere. Discrimination in favor of landlords 
and railroads who accept the paper; use of the reserve fund to buy 
land and a controlling interest in railroads or to build new lines and 
then to boycott the refractory roads, until this is no longer needed; 
and last, not least, political education of the members and full use of 
their vote to obtain government ownership of land and public utili- 
ties, and the use of exchange-paper by the government to pay offi- 
cials and other expenses so as to render possible its acceptance for 
taxes, must do the rest. When the corporation is once so rich that 
it can procure all the land and railroads the members require, so that 
it can force down the value of the remaining land and roads and 
finally control all, thus forming an organized co-operative common- 
wealth, a state within a state, its political power will have become so 
great that the ballot can do the rest, can materially accelerate the 
final victory. 

To further the great work, an institution may be recommendable 
which I found very useful in New Zealand: the issue of a periodical, 
in connection with the Mutual Banks, as their central organ. This 
organ will not only give the Usts of new members — until the mem- 
bership becomes so extensive that it may be less troublesome to pub- 
lish thenames of those who "do not accept the people's paper — be- 
sides other notices of the institutions, but it may also become, what 
the name of its New Zealand precursor implied, a ^'Pioneer of social 
reform." Its main task would be to unite the members on the great 
reform work yet to be performed by them in their quality of citizens, 
independent of parties, especially Mutual Banking. To insure to the 
paper a larger circle of readers than any other paper possesses, and 
thus to make it also a powerful protector against annoyances by the 
financiers, the arrangement I made in New Zealand might be copied. 
The paper might be given in the place of a dividend on the one bank 
share which every member must own. If $5 shares are made, a 
dividend of 5% (with the advertisements) would pay the expenses of 
a weekly. This would save the work and the cost both of paying out 
the small dividends and of collecting the subscription fees. The sec- 
ond-class privilege, forfeited by free delivery, would thus be secured. 

One detail merits a short reference: the question of territorial 
extension of the bank's organization. Are we to have a United States 
bank with local branches, or State banks federating? I think the 
latter plan better adapted to our institutions, without wishing to see 
obstacles put in the way of members joining the organization of sorne 
other State, instead of the one where they live, if they prefer it. 
Howeve'r, in the beginning, a concentration of power in one single 



222 THE ECONOMIC AND SOCIAL PROBLEM. 

organization might be preferable. As they strengthen, branches 
might gradually become independent and remain in contact with 
Other similar banks through a central clearing "house, with control 
over its members. Much must be left to local initiative, and no pro- 
jector can foresee all contingencies of practical work in the future. 
In all this I merely intend to give the results of my own ideas and 
experience, which, though they may obviate the necessity of similar 
experience for others, cannot pretend to surmount new difficulties 
which may present themselves. 

Proudhon's writings, Owen's work described in George Jacob 
Holyoake's "History of Co-operation," the experience of Bonnard 
and his successors, the writings of John Armsden, of William B. 
Greene, A. Whittick, Arthur Kitson, Hugo Bilgram, Alfred B. 
Westrup, etc., may supply additional help. Faithful pioneers, all of 
them, for the great work, whose victory they prepared. Perhaps at 
last the great moment has arrived which sees the fruit of so much 
labor, seventy-five years after Owen and sixty after Proudhon spread 
the first seeds. The Crisis of 1907 is a splendid propagandist. I 
have tried to condense its lesson in a paper which appeared in "Out 
West" in January, 1908, under the title, "The Crisis in Jackassville." 
I here quote the little story with which the article begins: 

"Jackassville was in great trouble. This is how it came about. 
An epidemic had broken out in the town, and the doctors were at a 
loss as to its origin, until one of them, wiser than the rest, attributed 
it to contamination brought about by the circulating coins. Upon 
this the City Council at once decided that all the coins in the place 
had to be thoroughly washed with soap and water and then allowed 
to dry in the open air on the common for 24 hours. Faithfully the 
programme was carried out. Unfortunately, there passed that way 
a tramp, who was not at all afraid of infection, and took the risk of 
carrying ofif all the money he found spread out on the common, even 
stealing a good sack from the miller for the purpose. The next 
morning there was howling and gnashing of teeth, and a messenger 
was sent at once to the seat of government with the request for im- 
mediate help, for the city was absolutely destitute of money, and 
starvation would soon ensue. The Governor at once repaired to the 
place and took in the whole situation. The town was well provided 
with wheat, cattle, vegetables, fruits, wool, cotton, fuel, timber, and, 
in fact, all raw materials necessary to feed, clothe and house the peo- 
ple. There was plenty of skilled and unskilled labor of all kinds 
ready and anxious to do all the work needed to change the raw mate- 
rials into bread, meat and other food, into clothes, boots, houses, 
furniture, and so on, as had been their wont. All this was in the 
best order, and so the Governor told them; but I am afraid it cost 
him votes at the impending election, for the general opinion was ex- 
pressed in the indignant words of the Mayor, who replied: 'We 
know all that. But don't you see. Governor, that we have been 
robbed of the last cent, and that nobody has any money left to buy 



CO-OPERATION. 223 

the good things he needs? We thought we had made the case clear 
enough when we notified you of the general poverty into which we 
had fallen through the shameful act of that tramp.' The Governor 
saw that it was no use insisting on the fact that people do not live 
upon money, but upon the products of labor which they require for 
their sustenance, and that of these there was more than plenty in 
the town. So he decided to teach them the lesson they needed in 
some other way. Telling the assembled City Council that they were 
right, and that he had thought of that before he left the capital, he 
pulled a roll of large bank notes from his pocket and handed them 
to the Mayor as a temporary loan from the Government. The money 
was received with many thanks, but the great difficulty at once pre- 
sented itself that there was no small bills and no 'change' ; that the 
bills were altogether too large to be used in the ordinary business 
intercourse of the place. T'U tell you what we will do,' said the wily 
official. 'You deposit these notes with me and I will act as your 
trustee, who keeps the money as a security for the cheques you are 
drawing to pay each other with. The Mayor, who knows you and 
your transactions, will, of course, certify only the cheques which are 
all right — which means those which you draw for goods actually 
received for services rendered, for which you are at any time ready 
to deliver goods or services in turn. Those who can be relied upon 
to do so are solvent, and their cheques will be certified.' And then 
the Governor went away, and business prospered in Jackassville as 
it had never prospered before. The cheques were every day cleared 
by the Mayor — which means that he kept a large ledger, in which 
credit was entered to each man for whatever cheques he brought in, 
while the cheques which he had drawn were deducted from his credit. 
As the citizens did not draw any more cheques than they received, 
the accounts always balanced. If this was not done the same day, it 
was mostly done within a week. If there were a longer delay the 
Mayor did not mind it if he knew the parties were solvent. Nobody 
ever called upon the Governor for any of the money he loaned the 
Mayor, and which the Governor held in trust. As a consequence, at 
a pubHc meeting held one day it was proposed to authorize the 
Governor to pay back the money to the Government, as they did not 
need it, and might as well save the interest they had to pay for it. 
This was done, and business flourished as well as before in Jackass- 
ville. A strange story, isn't it? So much like another just now told 
of a certain people, called the American nation." 

I then applied the story to the prevailing crisis, by showing how 
the country is rich in everything that human beings require, and that 
only in consequence of our folly of making a scarce metal our only 
legal tender we find ourselves without adequate means of exchange. 
That now the hour of delivery may have sounded, for our money 
banks are the very parties to show us the instrument of reform. 
Their scrips, though without any legal authorization and security, 
did the service demanded of them., in spite of their being onlj;^ acees-- 



224 THE ECONOiMlC AND SOCIAL PROBLEM. 

sible to a minority, to the few who had money due them by the 
banks or who could supply sufficient collaterals. The moment may 
come which sees our business world — perhaps under the initiative 
of its Chambers of Commerce — create a means of exchange, which 
cannot be locked up and monopolized, which is accessible to every 
one without any further security than the proof of his productive 
power and his readiness to supply it, the best security in the world. 
Meanwhile the law givers at Washington debated which of the two 
miserable palliative measures was to become law: the emergency 
currency of Aldrich or the asset currency of Fowler, not being able or 
willing to rise to a real reform action, such as the creation of a postal 
savings bank, with a check circulation which gradually might do the 
work of a central bank. While a valuable opportunity was thus 
lost, the manufacturers of the country, the owners of railroads, the 
merchants and the farmers of the country, with such of the bankers 
as are capable to tear themselves away from a selfish onesided per- 
sonal interest policy, might unite for the issue of a new Declaration 
of Independence, the independence from the gold fetish, by creating 
a currency based on the surest foundation, upon the labor of a great 
nation freed from gold fetters, by setting in motion that gigantic 
force, which even now, under the load of the mightiest burdens, calls 
forth the astonishment of the world — Credit. Then the workers, 
kept in forced idleness, will set in motion the resting and rusting 
giants of iron and steel. Panting freight trains will cross the country 
with reawakened activity; the stores will fill with a renewed crowd 
of customers; the nation's life will throb with hopeful forces, so soon 
as the great banner of liberty is raised, the banner on which the 
proclamation is made in gigantic letters: Product for Product, Work 
tor Work! In hoc signo vinces! Under this sign, that of free ex- 
change, thou shalt conquer, poor hard working humanity, freed from 
the golden fetter which cuts so deeply into thy flesh ; but not other- 
wise; for without free exchange labor cannot possibly develop to its 
full capacity. It is true gold is not the only fetter. Land-monopoly and 
others will for a time still oppress us; but we shall easily throw them 
oiT after the heaviest one of all has been annihilated. \\'hat then 
will become of the nation's official money? Its legal tender need not 
trouble us much, so long as the unlegalized tender is universally ac- 
cepted. It may still find its use as change, or it may serve as a 
hoarding material. It may for a time serve to steady prices, still 
made in legal tender money, though hardly ever paid in it, except 
in small dealings, to finally give place to a scientific currency on the 
lines drawn in Chapter III. It matters little; for, important as a 
steady money-standard may be, it is only a secondary quality of a 
good money; its first and fundamental endowment is its accessibility. 
Even a money with a variable purchasing power, which is easily ob- 
tainable by any one who wants to work in exchange for it, is far 
better than a money with the most stable standard, which the usurer 
may lock up. 



CO-OPERATION. 



225 



I am unwilling to close this chapter on co-operation without 
alluding to three forms of co-operation which are not without some 
importance. The one is that presented by the experiment now made 
in England under the name of "Garden Cities," of settlements near 
large cities where manufacturers can have their works in the good 
air of the country, in proximity to the farmer, and where the workers 
and people of leisure can have all the advantages of the country and 
the town combined.* The land owned co-operatively, bought at 
agricultural prices, is supposed to be raised to city value through the 
access of population. The increasing income through the rents, 
which rise with the growing demand and with public improvements, 
after a moderate interest is paid to the stockholders, is spent for these 
very improvements, which thus swell the source they spring from. 
Fairhope, in Alabama, is organized on this principle, mixed with 
the idiosyncrasy of paying tenants' State and County taxes out of 
the town's rental income, because they want to call it a Single-Tax 
colony. 

The other co-operative scheme is concerned with Co-operative 
Houses and Associated Homes. When we want to produce cotton 
goods, the steam engine takes the place of thousands of wheel turn- 
ers; but when we wish to produce roast beef, thousands of cooks 
have still to perform a work which dozens could do far better under 
a system of centralization. 

I need not enter into the complaints about servants; nor is it 
necessary to say anything about the other worries of housekeeping, 
which so absorb the average woman that she has little time left to 
educate her children, and still less to improve her own mind. The 
estrangement from the husband, who looks outside for the intellec- 
tual intercourse he cannot find at his own fireside, and the whole 
tragedy which ensues in "home, sweet home," has too often been 
treated to need discussion here. And yet no reform could be sim- 
pler. Even if associated homes should meet with too much oppo- 
sition, a beginning- ought to be made with associated cooking, wash- 
ing, and house-celaning 

The next step would be to build a number of homes without 
kitchens around a central kitchen, to which a laundry, kindergarten, 
swimming bath, social hall, etc., might be added, as means permit. 
Servants could be kept in the central building who work by the hour 
for the single houses on business principles. They would be as in- 
dependent as factory girls, which, combined with better pay, might 
induce thousands to devote their time to this kind of domestic work 
in preference. 

All this and much more could be done, and the system would 
afiford a good deal more enjoyment to the members, and at less cost 
than the present wasteful practice ; but it will be the last reform we 
shall get. We shall perhaps have the socialist commonwealth before 

* Letchworth. near London, is the first, which, two years after its birth, 
has already 6,000 inhabitants. 



22(i THE ECONOMIC AXD SOCIAL PROBLEM. 

we have a general adoption of the Associated Home system, before 
our millions of galley slaves, called housevi'ives — with or without 
the scourge of underslaves — will be relieved from their wearisome 
drudgery. 

I have reserved for final consideration one class of co-operative 
schemes which deserves a history of its owai, much more extended 
than the numerous records given us by Nordhoff, Semmler, Noyes 
and others. It is the socialistic or communistic settlement, espe- 
cially well represented in the United States where a number, mostly 
on a religious basis, already exist. It w-ould take more space than 
the plan of this book affords, to give details. Tliese settlements 
are on the garden-city plan, in so far that they hold their land in 
common, wdiile some of them also embody the co-operative house- 
hold. They go beyond these limits by carrying on co-operative pro- 
duction and distribution in common. They try to show on a small 
scale that socialism, or even communism, can be made successful 
on a large scale by whole commonwealths. Most of them wish to 
be looked at as object lessons. It would not be fair to socialism 
and communism if we accepted them as such; because conditions 
on a small scale are altogether too unfavorable to admit of sound 
judgment on the feasibility of the scheme when tried by a whole 
nation. Labor has become so diversified that it needs more workers 
than the most successful of these schemes ever possessed, to pro- 
duce, under the best conditions, many of our necessaries. Of course 
none of the settlements ever produced more than a few specialties, 
and had to sell some of these to provide other kinds of goods not 
made in the circle. This alone has made it impossible to show the 
enormous saving of labor and waste attainable by mutual produc- 
tion and exchange. However, even without the advantage of such 
economy there ought to be no reason why a number of people work- 
ing on free land might not succeed in producing in common most 
necessaries. To a certain extent this has been accomplished where 
religious enthusiasm formed the cement which kept the colonists 
together and subordinated them to a capable management. In all 
other cases failure had been the final result; mostly in consequence 
of the personal clement. My participation in one of the well known 
American attempts of this class: the Topolobampo Colony, Sinaloa, 
Mexico, in the early nineties, decided me to refrain from any future 
work in this direction. It is too late for object lessons when all 
hands are needed on deck to bring the ship of state through the 
perilous tides which are surrounding it on all sides. However, I 
recommend to those enthusiasts, whom the failures do not frighten 
ofif, the constitution which, worked out by nie for Topolobampo 
at the time of its crisis, was unanimously adopted in its main fea- 
tures, but never had a chance of being tested. It provided for com- 
mon land ownership and common trading for exchange notes, the 
money of the colony, but for united production only in cases where 
private enterprise proved extortionate. In fact it meant to show 



SOCIALISM AND TRUSTS. 22.J 

on a small scale the feasibility of the reforms which this book pro- 
poses. Perhaps it was fortunate that the scheme was never tested, 
for its failure under such conditions might have been used against 
reforms, which, after all, do not aspire to success unless carried out 
on a national scale. 



CHAPTER VIII. 

SOCIALISM AND TRUSTS. 

"Our present social inequality materializes the upper class, vulgarizes the 
middle class and brutalizes the lower class." — Matthew Arnold. 

THIS work, so far, has pursued strictly individuahstic lines. Its in- 
dividualism, however, has been a logical one, very different from 
that pseudo-individualism and liberalism which permits a minority 
to monopolize the ownership of the globe and then preaches against 
anv interference with the liberty of the individual. Land restoration 
has, therefore, been the first demand on our path to free individual- 
ism, land restoration with all it includes: state ownership of farm and 
town lands, of mines, forests, quarries, oil wells and roads. How- 
ever, something more was needed to permit the free development 
of the individual under the new conditions brought about by the 
advance from barbarism: a universally accepted and accessible 
means of exchange, elastic enough to adapt itself to the demands of 
trade. To leave its production free was impossible, for the very 
nature of a serviceable money is its general acceptance. If every 
one could manufacture money this universal acceptance could never 
be secured. Universal free exchange and consequently free produc- 
tion are impossible without a general agreement as to the means of 
exchange. We have seen how unfortunate the choice of coins made 
out of precious metals has' proved. We have seen how a new monop- 
oly was thus thrown into the hands of those who could corner the 
precious metals and the possibility of providing a far better means 
of exchange, a money which could not be monopolized by indi- 
viduals. We further saw that with untrammeled opportunities 
and circulation unlimited, freedom in production and distri- 
bution would no longer be harmful. No use for usury 
laws when interest, the child of land and money monopoly 
disappears with its parents. No need of protective tariffs 
where the absence of interest makes international exchange a barter 
of commodities for commodities. No need of labor-laws, limiting 
hours of work, fixing a minimum wage, organizing arbitration, in- 
suring against sickness, accidents, old age. or unemployment, where 
production keeps up with productive power, so that wealth, includ- 
ing the means to pay for insurance, is at the disposal of all who are 
able and wiUing to work The unfettered forces of supply and de- 



22$ THIi ECONOMIC AND SOCIAL PROBLEM. 

inand can then be relied upon to produce that self-adjustment be- 
tween the economic factors now erroneously supposed to exist by 
those who believe that solid buildings can be erected without a solid 
foundation. 

It has been disputed whether political economy is a science. 
The doubt is perfectly justified, when we observe the discrepancy 
between its theories and their practical results. But no science can 
give any correct results when we depart from fundamental princi- 
ples, which in the case of political economy are two: (i) The land, 
the very foundation of our existence, must belong to the people at 
large; and (2) the circulating medium must be easily obtainable by 
all who have products of any value or efficient labor to sell. Only 
by building on these immutable principles can results correspond to 
theorv, and only then will political economy become a science. 
Without such a foundation it is merely an exponent of expedients, 
whose beneficial efifect is proportioned to their departure from first 
principles. 

No greater improvements in manufacturing and distribution 
were ever made than by the combinations called Trusts. Under free 
conditions they would' be a real blessing; but as it is. they fully 
deserve the curses launched against them. In the existing world, 
whatever economises power is a misfortune; whatever wastes and 
destroys is a blessing. Thus W. S. Gilbert, in his letter to the Lon- 
don Times, says "he could never fully understand the prejudice 
against burglars. A burglar gives work to innumerable telegraph, 
police and railroad ofificials; and possibly also to surgeons, coroners 
and tombstone-makers. As soon as he is in custody, the service of 
a whole army of lawyers, judges, petty and grand jurors, reporters, 
prison administrators and turnkeys are put in requirement. Cer- 
tainly the burglar effects more good than harm." 

This can be proved by a very simple test by which we judge 
whether, under existing unnatural conditions, any measure will pro- 
duce good or bad results. We simply investigate whether its prin- 
ciple is correct or not. If it is correct, then the measure won't do; 
but if the measure is based on a vicious principle, it is ten to one 
that the best thing is to vote for it. It will be easy enough to prove 
this strange paradox. 

Is it good that millions of men are kept unproductively under 
arms from day to day, from year to year, that Europe's peace estab- 
lishment alone now exceeds four million men? Certainly not! Such 
a state of things is entirely opposed, not only to economic laws, but 
also to those great principles preached from the Mount, which form 
the basis of that Christianity professed, though not practiced, by a 
great part of our civilized world. Tlie conclusion is that this armed 
peace, this forcing of millions into a busy idleness, is an excellent 
thing from an economic point of view, as long as we do not make 
fundamental economic changes. We talk of over-production now; 
hut what should v e have to say if these millions of our strongest, 



SOCIALISM AND TRUSTS. ?29 

healthiest and most energetic men. instead of merely consuming, 
were set to work to produce more wealth, imploring a market? 
This explains why there are far more unemployed in England and, 
in spite of her wonderful resources, even in the United States thari 
in the military countries of Europe. On the other hand, when is 
business brisker than in war times? Business was prosperous diir- 
ing and immediately after the Crimean, the American Secessiori 
War. the Franco-German War; and is not the revival, which ter- 
minated in 1907, mostly due to the Boer and Russo-Japa;iese wars? 
This is natural, for war is the greatest consumer; war creates that 
wonderful arcanum for which we all sigh and often fight: a market 
for our surplus production. Things have come to such a pass that 
business men all over the world look at wars, if only they do not 
involve their own country, as blessings, which a poor, overstocked 
merchant ought to be very thankful for. I know they do not say so 
publicly, and their press organs are duly praising the blessings of 
peace with a grateful upturning of their eyes; but I know what is 
said behind the scenes, for during nearly half a century I have been 
an initiated member of Mercury's Stock Company, called the com- 
mercial community. If this had not been so, if I belonged to that 
learned clique which the world over have monopolized economic 
and social science, I should speak differently. I should possibly 
praise the beneficial effects of peace; I should curse the destructive 
tendencies of war; I should declaim against the waste of militarism; 
I should expect universal prosperity from general disarmament; I 
should do all this, and I should be as great a liar as they are under 
the existing state of things. Moral: peace societies, stop your ne- 
farious work! Nefarious, as long as you do not help us to lay those 
foundations of the peace temple, without which the higher you 
build the more surely will your baseless structure fall, and bury you 
under its ruins: the foundations I have been trying to specify in this 
book. 

It is a truism that alcoholism is even a more terrible scourge 
than war. For one victim of the battlefield, more than a hundred 
are killed by the bottle. But supposing prohibition or any other 
method were successful in exorcising the fiend, what would be the 
result under existing conditions? A terrible increase of over-pro- 
duction and unemployment, as long as every worker produces four 
particles of wealth, and is only permitted to consume one, while 
those who are entitled to the lion share are over-satiated and cannot 
consume all the wealth falling to their share. Consequence: more 
unemployed and more drink. For one man saved from drink in 
such circumstances and now producing with all his power, instead 
of destroying wealth, two may lose their job and turn to drink in 
their despair. Proofs are not wanting that misery produces drunk- 
enness tar more frequently than drunkenness produces misery. 'Tn 
Rent, Interest, and Wages" I gave an interesting- example from the 
North of Ireland, where a drunken population became sober 



2^0 THE ErDNOMIC ANM) SOCIAT. I'KOI'.I.EM. 

through dbtaining a continuous paying employment. I here add an 
article from the Binghamton Independent in the same direction: 

"A table has been prepared by Professor Warner, of Stanford 
University, based on fifteen separate investigations of actual cases 
of poverty, numbering in all over 100,000 cases in America, Eng- 
land and Germany. These investigations were conducted by the 
charity organization societies of Baltimore. Buffalo and New York 
City, the associated charities of Boston and Cincinnati, by Charles 
r^ooth in East London, and for Germany we have the statements of 
Mr. Bohmert as to seventy-seven German cities. They include vir- 
tually all the facts that have been collected by trained investigators, 
unbiassed by any theory. From these figures it appears that about 
20 per cent, of the worst cases of poverty are due to misconduct, 
and about 75 per cent, to misfortune. Drink causes only ii per 
cent., while lack of work or poorly paid work causes nearly 30 per 
cent. 

All evidence worth considering goes to prove that poverty and 
crime are both results of forced idleness or low-paid labor. As a 
rule, men who are steadily employed at some productive work, and 
who get in return for their labor what they consider to be a fair 
share of the product of their efforts, are temperate and moral. If 
all men could feel sure of steady work at fair pay there would be 
practically no need for policemen or temperance societies. If the 
preachers would study theology less and political economy more, 
and then go into their pulpits and preach practical Christianity for 
every-day use, they would be doing a far greater work than they are 
when they talk about patient submission here, in order that reward 
may be had hereafter. 

Poverty and crime are results of law'S which men have made, 
and we will have both so long as these laws are in operation. It is 
not the fault of God, or Nature, or whatever you rtiay term the 
creative cause, that many men are poor, shiftless and intemperate. 
The fault lies with the people, and with them rests the remedy and 
the responsibility. When the people are wise enough to remove the 
cause, the evil will disappear. It is about time for men to stop re- 
peating that antiquated statement that intemperance is the prime 
cause of poverty, and take up the study of how to remedy the real 
cause — enforced idleness." 

Moral: Temperance promoters had better help in taking away 
the worst cause of drunkenness, which is not, as they think, the sup- 
ply of alcohol, but the social conditions which drive men and women 
into the bar-room. 

In any case, most of our temperance promoters are too radical; 
instead of working for mere temperance, they fight for total prohibi- 
tion, and thus make enemies of many who detest the abuse of alco- 
holic drinks, but shrink from infringing the freedom of the indi- 
vidual. If they took example by those countries which are working 
on the Gothenburg or related systems — aiming at decrease of drunk- 



SOCIALISM AND TRUSTS. 23I 

cnness — they would be much farther advanced. Fifty years ago 
the annual consumption of alcohol in Scandinavia was 30 litres 
(nearly 7 gallons) per individual. It has now been reduced to 2 
litres; and in Norway delirium tremens has become an almost un- 
known disease. 

An anti-treating law — fining the publican who serves liquor to 
any p,erson who does not pay for his own drink — might do away 
with one of the most prolific causes of drunkenness, and one of the 
most idiotic limitations of personal liberty in this country: the un- 
written law which compels every member of a party of friends who 
meet at a bar to order drinks and pay for the whole group, so that 
each individual pays in turn, and each drinks far more than he 
would have imbibed otherwise — with inevitable consequences. 

Thi'ift, if generally practised, would under present conditions 
prove one of the worst calamities that could befall us, as has been 
already shown in Chapter V. Does it not mean an increased pro- 
ductivity accompanied by a restriction of consumption and conse- 
quently of production? As long as we complain of overproduction 
or underconsumption the waste of the well-to-do is beneficial, their 
economy of evil effect. Let us all live the simple life, let us restrict 
private and public expenses to the lowest limit and see how we can 
keep alive the millions of additional unemployed that under the pres- 
ent system would result! 

Moral: More waste, more useless officials at good salaries, 
more million dollar baths, more $50,000 balls, more $400,000 
weddings, more yachts, more palaces, etc.; but for Heaven's sake. 
no more thrifty, industrious workers! This adjuration is required 
to-day even more urgently than it was twenty years ago in Eng- 
land, where I penned the following lines; because compound in- 
terest has continued its nefarious work all this time: 

"The praise of industry sounds from every pulpit and platform, 
is dinned into our ears by millions of leaden soldiers from the type- 
foundry regiment, leaving the impress of their footsteps on millions 
of tons of paper which go forth as dailies, periodicals, or books. 
How strange that we find a growing fear of industrious workers, 
and that we do our best to send them out of the country, or to pre- 
vent their getting in. Emigration societies are founded, laws against 
the immigration of foreign workers are enacted or demanded. The 
rich drone is welcomed everywhere, and glowing advertisements set 
forth in rose colors the advantages of different towns in order to 
attract him; whereas workers are warned off in every possible way. 
It is a natural result of the unnatural state of things we live under; 
for consumers are wanted, and producers shunned in a world in 
which the purchasing power of the masses lags more and more be- 
hind their producing capacity." 

The whole aspect of the case would be changed by a reform 
which kept the purchasing capacity of the masses parallel to their 
productive power. Anything which increases the one must then 



23^ 'I'll'-- KCONO.MU' AM) SOCIAL PK( ) 1! LI'.M . 

result in an equal increase of the other; so that production will no 
more be fettered by the elements which are meant to promote it. 
Peace, temperance, and thrift, the stoppage of waste of all kinds, 
will not only cease to deprive the workers of a chance to make a 
living, but will enable them to earn more, with less labor. Labor- 
saving inventions will prove the real benefit to the working masses 
which they are now wrongly supposed to be. They will increase 
Vv'ealth production while lessening toil and working time. They will 
enrich the worker, and enable him to become his own employer, 
working with his own tools, or dictating his terms. Tliese terms 
will be quite different where two employers compete for one worker 
than where two workers compete for one employer. No more 
strikes or lock-outs in such a case! There ought then to be no more 
antagonism between the two camps who now waste their best en- 
ergies in fighting each other. Instead of being at loggerheads about 
factory acts, about working time, and minimum wage, both ought 
to unite in fighting their common foes: private land monopoly, an 
inelastic currency, and the dire offspring of those twain — interest. 

The conflict is no more between employer and employed, or 
between wealth and poverty, but between monopolv and freedom. 
Monopoly rides on the back of mankind as the Old Man of the Sea 
sat on Sinbad the Sailor, gripping firm hold with its two knees: 
Land and Money and the sufTering mass need no further concession 
than that the monster shall get off its back. Tlie quarrel lies not 
between the competitive system and co-operation, as Socialists 
think— whatever reforms may yet be found desirable in that domain 
— for both systems can be practised under slavery. It is simply a 
fight between liberty and slavery. It is the power of preventing 
free competition by monopolizing land and money which causes the 
struggle, the devil-take-the-hindmost fight we are daily witnessing. 

A theatre is burning; in headlong flight old and young, weak 
and strong, men and women try to gain the outlet — a single small 
door blocked by a frantic mass of fighting humanity. Hundreds of 
corpses are found the next day, and people are discussing the cause 
of the disaster. Some pretend that if, instead of this mad competi- 
tion for the only outlet, there had been peaceful voluntary co-opera- 
tion, or if the authorities had maintained order and forced the people 
to walk out in a regular procession, all would have been well. Per- 
haps so, or perhaps only half the spectators would have perished ; be- 
cause, even in the calmest and most methodical manner, all might 
not have been able to pass through so small an opening in such a 
limited time. But a sufficient supply of doors would have allowed 
all to escape, no matter whether order reigned or not. Open the 
doors widely for really free competition, and people will cease to cry 
for State intervention! 

Liberty is the perennial source from which alone a higher civil- 
ization can flow; slavery proves to be a curse for the master as well 
as for the slav^. Yes, also for the master, if it were for no other 



Socialism and trusts. 233 

reason than that given by John WiUiam Draper iri the "Intellectual 
Development of Europe": "The high caste is steadily diminishing 
in numbers; the low caste is steadily increasing. In impervious 
pride the patrician fills his private jail with debtors, he usurps the 
conquered lands. Insurrection is the incz'itable consequence — foreign 
ivar the onl\ relief."'' What was true of old Rome is true of our 
times. The "tendency of concentrating wealth in a few hands is even 
more marked now than it was in the days of which Draper writes 
and the danger is quite as great. 

Those who are on top forget how insignificant their number 
really is. Tliey meet in their drawing-rooms, their clubs, in their 
boxes at the theatre, their ball-rooms, and public drives; and seeing 
each other so often, they obtain the impression of large numbers, as 
we do in the case of those histrionic armies composed of the same 
few men who march out at one side of the stage to come in again 
on the other, occasionally changing their helmets and arms if there 
is no time to don another uniform. Thus our upper classes do not 
perceive how thin is the shell which they form on the social globe. 
We hardly realize the flimsy nature of the envelope which protects 
us from the volcanic underlying masses. We quietly go about our 
business and pleasure, until an earthquake or an eruption disturbs 
us in our careless dream-life, reminding us of the terrible powers 
beneath. So our plutocracy lives from day to day, investing and 
speculating, accumulating and wasting, without thinking of the tur- 
bulent masses on whose shoulders their palaces are built, until a 
social earthquake, an insurrection, sometimes growing into a revo- 
lution, shakes them out of their indifference. And all the while, the 
very forces which should prove the greatest blessing to all, our 
progress in science and the arts, serve to increase the tension. Our 
Divine Master has not given us a very long time for that peaceful 
evolution of humanity which may yet prevent the most frightful rev- 
olution this world has ever witnessed. We may guess the power 
of the reaction by that of the forces at work towards a culmination 
of the evil. You who have the capacity and the means to hasten 
the day of reform, hurry up in your own interest while you may! 
You cannot secure your own future, and certainly you cannot pro- 
vide for your children, in any other manner. Those fortunes which 
.you may leave to your heirs will crumble to dust, for they are noth- 
ing but mere titles to slave services; they become waste paper on 
the day that sees the slaves break their chains. But you can leave 
behind you something immensely more valuable and indestructible: 
a free world, in which every talent has scope; in which easy and 
pleasant work, less exhausting than those so-called pleasures, which 
now absorb your time, will provide your children with all they need; 
■ a world which the gratitude of millions would transform into a 
paradise for you and yours. 

But I leave to others the task to appeal to your higher motives. 
Experience has shown me the futility of such appeals, where the 



234 THE KCONOMIC AND S(J(l.\I, I'ROBI.RM. 

mind is so immersed in selfishness lliat the eyes cannot see beyond 
the artificial wall of prejudice. Be selfish, if you cannot help it; 
only, in your selfishness, be at least as practical as you are when 
you give orders to your stockbrokers. Weigh in your mind which 
enterprise offers the best chances of investment: the stock com- 
pany — in which you are as' yet a main shareholder wdio is busily en- 
gaged with the sawing of the branches on which you are sitting, 
endowed with an immense capital to do the work as speedily as 
possible, wdth golden saws tipped with diamond compound interest 
teeth; or that other company, whose share register has as yet few 
subscribers, but whose object — among others indifferent to you — 
could be also to supply you w^ith a safer support than the branch 
on which you so strangely rely. 

Oh, Carnegie! oh. Rockefeller! great monopolists and pro- 
moters of education, think of it for one single moment! What you 
are now doing can only help in the branch sawing business; for 
every one of those thousand poor scholars whom you provide with 
the means of education will, at the end of his studies, find himself 
in a world where knowledge and ability become every year more 
incapable of making headway against stupid mediocrity that is the 
inheritor of monopolies, the slave-driver swinging his whip over the 
skilled and the unskilled worker, over the scholar and his intellects 
as well as over the common laborer with his brawny arm. Tlien 
will they curse the larger vision you have helped them to achieve; 
for they will see beyond the mists which as yet veil the truths of life 
from the ignorant many, and they will discern that your benefac- 
tions to themselves were fruits of that very system — that Upas tree 
— which has poisoned the whole anguished world. 

Oh, Carnegie! oh. Rockefeller! a fraction of the sums that your 
philanthropy is misdirecting would launch a reform propaganda 
which — controlled by your genius of organization — could trans- 
form this planet! Peacefully would the marvelous change be ef- 
fected, and long before it can be reasonably anticipated by other 
means. Men like you, and still more especially, men like Tom L. 
Johnson, the creature of monopoly, who exerts his power and his 
wealth to combat monopoly — could become important factors in 
the march of progress, could advance incalculably that peaceful and 
brotherly development longed for in the heart of the human race'! 
Not through strengthening that longing by direct appeals, which so 
many good men at this time are making in press and pulpit, for it 
is not a mere ethical question. Let rebating stop, let the trusts dis- 
band, let franchises be kept by the community or leased at their full 
market value, let corruption disappear and people treat each other 
like brothers; but let rent accumulate in private pockets, let interest 
go on compounding, and things will get worse to-day than they 
were vesterday. to-morrow than they are to-day. Unless we change 
economic foundations, we work in vain, we waste our breath and 
ink in preaching and writing. We resemble that poor woman who 



SOCIALISM AND TRUSTS. 235 

was given a lift by a kind driver, to whom she replied upon his ques- 
tion why she did not put down the load she carried on her back: 
"I do not want to- presume too much on your kindness. It is hard 
enough on the poor horses to carry me along without imposing on 
them my load too." 

Rent and interest press with the same unbearable weight on 
the wheels of industry, wearily dragged along by the laboring 
masses, whether the passenger takes some of the load on his shoul- 
ders or puts it down on his seat. 

While I am writing these pages the tide of "muck raking" is 
nmning high, and in the violence of personal aspersion few remem- 
ber that man is the product of heredity and environment, and that 
to look for improvement in a reformation of individuals is like try- 
ing to cure the small-pox by cutting off the pustules. The wealth 
of the Rockefellers and Carnegies is neither the outcome of their 
personal capacities, great as they are, nor of illegalities, but of laws 
which permitted their monopolization of raw-materials in the womb 
of mother earth, and of roads, aided by laws that restrict our means 
of exchange and others that kill foreign competition through high 
tariffs. It has been well said that dirt is wealth in the wrong place. 
The ability of men like Rockefeller, exercised in the' right place, can 
produce untold good. It has become a fashion to rail against the 
Trusts and even to make laws against them.* It is the merit of 
socialists to point out that the principle which underlies trust forma- 
tions is sound; and that these organizations will benefit the people 
the moment their fruits are not monopolized by the few, but belong 
to all. These fruits are savings of waste in the processes of produc- 
tion and distribution, due to'competition. 

Competition ! I come back to this strange actor on the economic 
stage, adored as a saint by one party and cursed as a devil by the 
other. To the one, competition is the source of all progress; to the 
other, it is responsible for the social chaos. Here we learn that 
"competition is the life of trade;" there, we find all our miseries re- 
ferred to as "the competitive struggle." Which is right? As usual, 
there is truth on both sides. In the political economy built on the 
false foundations of private land ownership and our existing legal- 
tender money, competition results in the domination of the land and 
money monopolist, of the trust; while in an economy built on free 
land and a really elastic currency, competition becomes beneficial; 
and even the Trusts, deprived of their legal monopolies, would 
change into useful wheels of the economic mechanism. 

* I use the term Trusts because it is generally employed ; though the most 
powerful industrial combinations are not independent producers doing business 
through a central office, a Trust, but simple business corporations, stock com- 
panies (in England they are called Limited Liability companies) which differ 
from others chiefly in their dimensions. Instead of one factory, they own a 
hundred ; but their legal status is not changed thereby ; no anti-trust law would 
hit their organization. 



236 THE ECONOMIC AND SOCIAL PROT.i.^:^f. 

Socialists always remind mc of Lamb's Chinaman, who burnt 
his house to roast a pig, because he did not know- that a few sticks 
might be made to produce the same efifect. So socialists cannot see 
how the people's welfare cam be advanced, how the roast pig of 
general prosperity can be obtained, without a total destruction of 
the individualistic structure which our civilization has evolved out 
of the barbarian's communism. They propose to abolish our pres- 
ent system of ownership, production and distribution, without con- 
sidering whether, after all, a change in our system of land owner- 
ship, combined with rational currency reform, might not be suffi- 
cient to produce the same beneficent results. This investigation 
would teach them that they need not demand the nationalization of 
the means of production even, for if labor owns the land it can soon 
bring forth all the other means of production; so that common land 
ownership by itself is absolutely suflficient to accomplish the desired 
results, provided, of course, that circulation is not impeded by giving 
an exclusive money monopoly to one or two scarce commodities. 

Let us suppose the whole United States soil owned by the 
workers of the country, freely exchanging their products, while the 
capitalists possess all the houses, machines and capital of any kind; 
what would be the result in a few years? On the one hand, the 
enormous development of productive power would have enabled 
labor within that time to produce better houses, machines, capital of 
all kind and more of all than now exists in the country, while the 
capitalists would not know what to do with their decaying houses, 
rusting machines and ruined stock, unless the workers kindly took 
them ofif their hands. 

I do not want to be misunderstood when I attack the "competi- 
tive system" shibboleth. Though I had to prove this slogan a mis- 
leading catchword, when the real clue to the great problem is looked 
for, I do not thereby wish to indicate that I am standing up as a de- 
fender of the kind of competition we are used to, the better name of 
which is JVasfe. 

(At all events it is a far better slogan than that of "the capital- 
istic system of production" (Kapitalistische Productionsweise) used 
by the German speaking socialists ; for, as I shall show further on, it 
is not so much the system of production as that of distribution which 
ought to be arraigned.) With or without socialism, the whole trend 
of progress is against it. Parallel with the advance from hand work 
to that of steel levers and wheels, from the primitive tool to the com- 
plicated machine, went the progress in the methods of production 
and distribution, and this progress was altogether on the line of 
lessening competition through a more extended co-operation. The 
factory took the place of the little shop, as the railroad train took that 
of the coach and cart, and the Trust unites the factories and railroads. 
At each step division of labor became more perfect and the cost 
price of the product less. Trusts, department stores, and co-opera- 
tive stores are advance steps in the processes of production and dis- 



SOCIALISM AND TRUSTS. 237 

tribution; and the fight against them is of the same kind as that 
against machinery, a fight quite as justified under existing condi- 
tions, on the ah"eady illustrated principle that in a world which is 
upside down through our departure from fundamental principles, 
what is good in principle is bad in practice, and vice versa. The 
socialist Wilshire's motto: "Let the nation own the trusts!" is cer- 
tainly more rational than the cry: "Down with the trusts!" There 
is a third way, however, more on the line of organic evolution and 
in the same direction, in which we found the remedy against want 
of employment and overproduction : Freedom. Freedom from land 
and money monopoly once accomplished, any device by which more 
wealth can be produced and distributed with less effort will be wel- 
come. With monopolized land and money and the consequent 
growing chasm between productive power and production, every 
such progress must be harmful. Either we go back to first princi- 
ples or we are condemned to march in the line of expediency. 

The economic field is not the only one where we have to follow 
this course. Love is the great life principle which should govern 
our actions; but if barbaric hordes attack our homes, burning and 
killing as they advance, expediency must take the place of this great 
principle, and automatic rifles will be temporarily preferred to bibles. 
It would certainly have been far better to prevent the invasion by 
observing the laws of justice and love, but if we do not destroy the 
evil at the root we have to cut down the branches. If we do not 
reform fundamental economic evils, we have to protect ourselves 
as well as we can against their effects, no matter how dangerous 
the remedy by itself. 

Even Communism, the remedy of despair for thousands who 
can see no other way out of the calamity, is preferable to a contin- 
uance of present conditions, without fundamental reform. This is 
in agreement with the well-known words of John Stuart Mill: "If, 
therefore, the choice were to be made between communism with all 
its chances, and the present state of society with all its sufferings 
and injustices; if the institution of private property necessarily car- 
ried with it, as a consequence, that the produce of labor should be 
apportioned as we now see it, almost in an inverse ratio to the labor 
— the largest portions to those who have uever worked at all, the 
next largest to those whose work is almost nominal, and so, in 
a descending scale, the remuneration dwindling as the work grows 
harder and more disagreeable, until the most fatiguing and exhaust- 
ing bodily labor cannot count with certainty on being able to earn 
even the necessaries of life; if this or communism were the alterna- 
tive, all the dif^culties, great or small, of communism would be but 
as dust in the balance." * * * "The restraints of Communism would 
be freedom in comparison with the present condition of the majority 
of the human race. The generality of laborers in this and most 
other countries have as little choice of occupation or freedom of 
locomotion, are practically as dependent on fixed rules and on the 



238 THE ECONOMIC AND SOCIAL PROBLEM. 

will of Others, as they could be under any system short of actual 
slavery." 

The extraordinary division of labor introduced into all branches 
of production has made most of our workers mere wheels in a gi- 
gantic machine, a fact not at all afifected by the system of enrolling 
the managers of the machine. Certainly no one can truly believe 
that the transfer of this management to men elected by the workers 
would result in less liberty than our existing method of government 
by absolute self-elected masters, whose decision allows no appeal, 
who at any time can deprive the worker of employment; can even, 
where blacklists exist, altogether cut him ofi from any chance of 
earning his bread by the work he has been brought up to. How 
little, after all, coalitions of workers can accomplish where they are 
faced by a union of employers, experience has repeatedly shown — 
as, for instance, in the great English engineers' strike or that of the 
Chicago teamsters. Where trusts dominate over a whole depart- 
m:ent of production, the chances of labor unions are certainly still 
further minimized, as proved by the failure of the American steel- 
workers' strike. In considering this question, the upper classes are 
only too inclined to forget that for the masses there is no really free 
competition even now. As a general thing, the dif^culty of finding 
another situation makes our employees more dependent than they 
ever could be under a socialist regime, which would at least allow 
their votes to elect the manager. But, through the trusts, even the 
employers are one by one losing their independence. Not to follow 
the mandates of the Rogerses, Morgans, etc., spells ruin. The in- 
dependent employer becomes the oflficial of the trust, and is forced 
to obey orders just as strictly as the public employee in the socialist 
state. Even when not absorbed by the trust, he is dependent on 
the ever more exacting and less certain customer, and his position 
has become so precarious and unpleasant that the main endeavor 
of many in this country is to find a good situation in the public 
service — v/hich, however, does not prevent the same parties from 
declaiming against the absence of liberty in the socialist state. It 
would be dif^cult for them to prove why the employee of a state 
which provides work for everybody has less liberty than the State 
official of our day, whose situation is longed for by a number of 
competitors anxiously anticipating the moment when his trembling 
hands shall lose their hold. The consequent subserviency to supe- 
riors is only natural. So we see that even the despotic communism 
put before us in such books as "Pictures of the Future," by Eugene 
Richter, cannot be so very repellent to the masses, because it can 
hardly restrict any liberty of practical value possessed by them in 
our time, while it would at least ensure them a permanent com- 
petency. That this actually would be the case, and that the bogey 
of famines and general misery put forth by Richter exists only in 
the fancy of such blind leaders of the Manchester school, needs no 
proof after calculations which show that one single hour given daily 



SOCIALISM AND TRUSTS. 239 

by all who are capable of work — under a systematic organization, 
without any waste — would provide all with the necessaries of life. 
An hour's work ought to be got out of every man and woman, with- 
out any compulsion other than that of sheer tedium. Many of our 
well-to-do people devote part of their time to pleasures which de- 
mand greater exertions and risks than most employments of paid 
workers. Mountaineering, hunting, deer stalking, rowing, yachting, 
cricket and football, coaching, autoing, ballooning, etc., prove that 
work of some kind is imperiously demanded by our nature. 
Whether a certain action figures as work or as a pastime often de- 
pends on its being done under compulsion or voluntarily. 

But abler pens than mine have often enough shown up in their 
real light objections of this kind, which, however justified they 
might be when looked at by the citizen of an ideal state such as 
never existed, are certainly worthless as regards the actual world 
in which we live. 'Here the one stereotyped answer can be given to 
all such detractors of socialism and its possible results. "And to- 
day? Are things not much worse?" 

When the disheartening picture of general sameness is unrolled 
before us — of barracks for homes, uniforms for garments, messes, 
and even State-regulated amusements, ridiculous fancies though 
they are — let us ask the poor proletarian whether he would not pre- 
fer even this mode of living to the one he is used to; Barracks are 
better than slums, uniforms are preferable to rags, a well garnished 
mess is decidedly pleasanter than a private table around which the 
children vainly cry for bread, and even entertainments organized by 
the State are preferable to those offered by the saloon. 

The following incident, which happened in Apulia, is related by 
Mr. Edward C. Strutt in the Monthly Reviezu, under the title, "Fam- 
ine, and Its Causes in Italy": 

"Three young women from Allisto were brought before the 
Prsetor of Ugento, charged with stealing olives on an estate belong- 
ing to the municipality. The pinched and starving features of the 
defendants, the eldest of whom was barely twenty-five, their ragged 
clothes, and their half-hopeful, half-despairing expression, excited 
the sympathy and pity of the kind-hearted magistrate, who, though 
unable to acquit them, sentenced them to the minimum penalty — 
viz., three days. Then a tragic scene took place. Bursting into 
tears, the prisoners flung themselves at the magistrate's feet, im- 
ploring him to give them the shelter of the prison for at least three 
months. With the touching ingenuousness of children, they told 
how the theft had been a preconcerted afTair in order to escape the 
terrors which the winter (a particularly bitter one this year) held in 
store for them, and how they had even consulted a lawyer, who had 
planned the whole scheme, assuring them that, according to the 
Penal Code they would be sentenced to three months at the very 
least. And now the poor girls saw their dream of prison paradise, 
\vith its bed and blankets, ^nd daily soup and bread, and meat twice 



240 THF. K((tXOMIC AM) St)t lAL PROBLEM. 

a week — a princely fare — vanishing like a mirage before them, jusi 
as they thought themselves on the point of entering the blessed 
portals!" 

People who regard the jail as an Eden from which they are de- 
barred will not be inspired by that horror for Richter's barracks and 
messes, with which well-fed, well-dressed and well-housed gentle- 
men regard such accommodations. 

Though the limitations of the second-class may appear unpleas- 
ant to cabin passengers, to the man from the steerage they will seem 
paradise. And Atkinson, Giffen, Richter and other glorifiers of in- 
dividualism with all its blessings seem not to remember that the 
immense majority of passengers in the ship of state travel in the 
steerage, and not in the saloon. Do not let us forget also that this 
immense majority own the ship, and that they will not be for ever 
deterred from taking possession by the contention that it is impos- 
sible to give them all first-class cabins. They will reply, not with- 
out justice, that they do not claim cabins like the present first-class 
compartments; but that an equal partitioning of the ship into a 
number of well-furnished rooms, vt-ith one good table for all, would 
certainly improve their position, however it might afTect that of the 
present first-class passengers. Nor can they be frightened by the 
prospect of their subordination under the orders of the ship's ofifi- 
cers; for though these officers may not drink champagne with them 
as they now do with the saloon passengers, they certainly will be 
politer towards men who are the recognized owners of the ship than 
they are towards poor steerage folk. 

What effect is produced upon the poor proletarian when you 
tell him that communism would stifle the inducement to exertion, 
because profit is no more obtainable, and that without this incen- 
tive progress will be arrested? He will answer like the servant im- 
mortalized by the German humorist, Fritz Renter. The man called 
his master to account because of the insufficient and poor food he 
was getting, and the master defended himself by asking the Court 
whether beef and plums is not an excellent dish. The man replied: 
"Certainly, beef and plums is an excellent dish; but, gentlemen, 
I never get it." Let us admit, for argument's sake, that our won- 
derful progress in the arts of production and distribution has been 
brought about by the desire to gain. What has this progress done 
for the masses of our population? Statisticians of weight, such as 
Thorold Rogers, Beissel, Janssen and others prove that their well- 
being is less than it was in the fourteenth century. They show that 
the average wage worker of our time cannot purchase as many 
necessaries of life as he could five hundred years ago, when pro- 
duction was yet in its infancy. It is true there are more recent 
periods that would give a relatively favorable aspect to our time; 
and optimistic statisticians of the GifTen and Atkinson type generally 
take such periods as standards of comparison. They quite ignore 
tho^e statistics just referred to, which present the somewhat hard nut 



SOCIALISiNI AND TRUSTS. 241' 

to crack: In those more remote times when the productivity of 
labor was not one-tenth as great as now, why was the purchasing 
power of wages higher, and why were the workers comparatively 
well off? They pick out the worst times labor ever went through, 
and from the top of this dunghill they flap their wings, and crow 
lustily: "Workers, see how much better off you are; stop com- 
plaining, and things will improve still more!" 

In his "Problems of Poverty," John A. Hobson gives them 
this answer: "The period between 1770 and 1840 was the most 
miserable epoch in the history of the English working classes. 
Much of the gain must be rightly regarded rather as a recovery 
from sickness than a growth in normal health. If the decade 1730- 
40, for example, were to be taken instead, the progress of wage 
earners, especially in Southern England, would be by no means as 
obvious. The Southern agricultural laborers, and the whole body 
of the skilled workers, were probably in most respects as well off 
a century and a half ago as they are to-day. . . . Although a 
'sovereign' will buy more for a rich m.an than fifty years ago, it will 
buy less for a poor man. The prices of most of the comforts and 
luxuri.es of life have fallen considerably; but the prices of most of 
the necessaries of life have risen. The man with an income of £500 
a year finds he can buy more with that sum than he could half a 
century ago; for almost all manufactures and imported articles have 
fallen in price. But a family living on 20s. a week spends a small 
fraction of their income on such goods. The prices which most 
concern them are the prices of shelter, of bread, fish, meat, grocer- 
ies, vegetables, dairy produce, etc. Bread, sugar, tea, cloth is 
cheaper (see 'Life and Labor,' by Booth, to see how little of the 
latter the very poor spend). Rent is 150 per cent, higher, vege- 
tables, milk, eggs, butter, cheese, coals, meat, oil, etc., are dearer; 
20 per cent, is to be knocked off money value of wages to find real 
rise." 

What can it benefit the worker if he can buy cheaper carpets, 
objects of art, and other luxuries which are mostly only attainable 
by tlie wealthy? They are "beef and plums" to him. Of infinitely 
greater value to him than all these luxuries is the certainty of al- 
ways finding em4jloyment; and this existed in a much higher de- 
gree in tb-ose distant days than in our over-production-shrieking 
times. This question of permanent employment is very often lost 
sight of when wages of different periods are compared. The weekly 
wage may have risen, and yet the yearly income may have de- 
creased; 30 weeks at $30 wages yield a smaller income than 52 
weeks at only $20. 

At the present writing (January, 1908), there are said to be 
four millions of unemployed in the United States. It has also been 
asserted that similar conditions recently existed in Australasia 
The following is from the "New Zealand Herald" of 1900 
"There are 5,000 applicants for billets (situations) in the New- Zea 



242 THE ECONOMIC AND SOCIAL PROBLEM. 

land Railway Departir.ent. Here is the state of things in Victoria. 
For 387 vacancies in the Railway Department there are — how many 
applications, can you imagine? No fewer than 12,000. The rush 
to Bendigo was scarcely a circumstance to it. Wages from ii to 
£3 a week — possibly £3 los. at the most. Just fancy! It has taken 
an army of clerks to open the letters and note the particulars of each 
applicant. The greater part of the applicants are country lads — a 
reflection on our vaunted productive industries. In 1897, for al- 
most a similar number of vacancies, the applicants were less than 
2,500. What accounts for the immense increase it is impossible to 
divine. Both wheat-growing and dairying are brighter now than 
then. Yet the fact remains that 12,000 of the youth of the colony 
are eager to get a billet in one of the poorest branches of the Civil 
Service. Surely there cannot be any more possible candidates." 
Which, by the bye, strangely illustrates the anti-socialists' bogey 
of the general slavery to be expected from state management! 

Said a West Australian paper: "A man in want of work called, 
among other places, at an iron foundry on the bank of the Swan, 
and asked for a job, but was told there was no vacancy. A day or 
two afterwards he saw the body of a man being dragged out of the 
river, and was told it was one of the hands of So-and-So's foundry. 
Ofif he rushed to the manager, and again asked for a job, and was 
told there was no vacancy. 'But,' said he, 'one of your men is 
drowned. I have just seen his body taken out of the river.' 'You 
are too late,' replied the manager. 'A man who saw him fall has 
got the job.' " That this story is brought out in a country so 
thinly peopled that its natural resources could support a population 
at least thirty times as large as it possesses, makes it as fit to illus- 
trate the employment problem as books filled with statistics. For 
those, however, who prefer the latter, I cannot recommend more 
instructive reading than the volumes of "Life and Labor of the 
People" by Charles Booth, and "Poverty" by Robert Hunter. 

Then there is the working time, in regard to which we cer- 
tainly are not ahead of the past. Eduard Sacher, in "Die Gesell- 
schaftskunde als Naturwissenschaft" tells us (p. 2'jf) that in the 
eleventh century the working time in mines was only 4 hours. 
Thorold Roger believes that in the fifteenth century the average 
working day in England was 8 hours only. 

I am sure that the most t jiiinistic statistician will not pretend 
that Incomes and purchasing power of the masses have kept pace 
with the productivity of labor, which — after taking into account 
the labor spent on the building of the necessary machinery — has 
increased at least ten-fold within a few centuries. Therefore, if 
instead of earning less, workers (including intellectual workers, 
who, relatively, are most underpaid) had to-day twice the purchas- 
ing power of those distant periods — and the most optimistic statis- 
icians dare not go beyond this — they would only obtain one-fifth 
of what they would receive if productive power were taken as a 



SOCIALISM AND TRUSTS. 243 

measure. I say "productive power," potential production, not 
actual production. I maintain that without working longer hours 
or any harder, they could have at least a five-fold income, if all 
waste of power, through forced idleness of millions, deficient or- 
ganization of production and transportation, militarism, flunkey- 
dom, etc., were stopped; if everybody were employed on the best 
method available, with the best of machines obtainable. If, how- 
ever, the waste through superfluous middlemen, were also stopped, 
and if the part taken by rent, interest and profit were restituted, 
we might easily come to a fifteen-fold increase of wages. 

In the face of such glorious possibilities it is really nauseating 
to meet again and again with the presentation of the low average 
figures which the total income of a nation gives when divided per 
head of population, to prove that communism (even if it did not, 
as it would, according to such individualists, largely reduce this 
average income) would simply spell poverty for all. Again and 
again we hear the "chestnut" about the communist, who, in 1848, 
wanted Rothschild to divide, with the result that the wealthy Ger- 
man banker handed him a florin as his share of such a division, tell- 
ing him to send all the others, meaning to prove that an equal divi- 
sion would impoverish the rich, without doing much good to- the 
poor. Though an equal division in the United States, according 
to the census of 1900, would give to each family a fortune of $6,000, 
which would seem wealth to a large majority of the people, we have 
nothing to do with such calculations. In the first place Socialism 
is not Communism, and does not at all exclude payment according 
to work done; in fact finds its weightiest attack against the exist- 
ing system in the proof that the latter's method of dividing the na- 
tional income is a gross and palpable contradiction of the principle 
of payment according to work done. And then, the socialist's 
main argument is that the overthrow of the unnatural obstacles, 
which the existing system puts in the way of production, would 
do far more to bring production up to productive power than the 
absent stimulant of free competition could make it lag behind. 

But we have not done yet with our friend Competition. We 
have a little nut to crack with those who drag him in at every 
opportunity, who fill our ears with him as if he were the life of 
society, as' he is supposed to be that of trade. These gentlemen 
arbitrarily limit his empire to the domain of the dollar, a paltry 
domain after all, though its master be called almighty. Is there not 
a far higher kind of competition in this world of ours, which we 
shall never lose even in the communistic State? A competition 
whose stakes are of a different nature aUogether? In his "Merrie 
England," Robert Blatchford points to the lives of men like Gali- 
leo.. Bruno, Newton, and indeed the bulk of the explorers, scientists, 
philosophers and martyrs: who were not forced onward by the 
incentive of gain, but by the love of truth, of science, of art. or of 
fame. And He who laid down His life on Calvary to accomplish 



244 '^^^^ ECONOMIC AND S(K"IAL PROBLEM. 

the best work ever done for liunuiniiy — did He work for pay, for 
wages, or dividends ? 

In a comnmnistic commonwealth everyone would have to 
give a day or a couple of days a week to productive labor. Were 
we relieved of solicitude as to bread the motives just mentioned 
would stimulate us to undertake the higher tasks of philanthropy. 
The most celebrated Talmudists gained their food by handicraft; 
their wisdom was not sold for money. Spinoza made a living by 
grinding o])tical glasses, and refused to consider the Elector of the 
Palatinate's ofYer to pay him for his intellectual work with a pro- 
fessorial chair at Heidelberg; preferring to ofifer the fruits of his 
studies free to the world. Does the soldier offer his life for pay.^ 
Is it for the love of gain that he rushes on the enemy's entrench- 
ments with almost certain death in view? Do we see a Milton write 
his "Paradise Lost" for pounds, shillings and pence? Is a Flor- 
ence Nightingale sacrificing her health in the field hospitals for 
wages? Did Luther translate the Bible on piece-work or salary? 

Carlyle never wrote nobler words than these, in "Past and 
Present": "]\Iy brother, the brave man has to give his life away. 
Give it, 1 advise thee — thou dost not expect to sell thy Life in an 
adequate manner! What price, for example, would content thee? 
The just price of thy Life to thee — why, God's entire Creation to 
thyself, the whole Universe of Space, the whole Eternity of Time, 
and what they hold; that is the price which would content thee; 
that, and if thou wilt be candid, nothing short of that! It is all; 
and for it thou wouldst have all. Thou art an unreasonable mortal 
— or rather thou art a poor infinite mortal, who, in thy narrow 
clay-prison here, scciiicsf so unreasonable! Thou wilt never sell 
thy Life, or any part of thy Life, in a satisfactory manner. Give 
it like a royal heart, let the price be Nothing; thou hast then in a 
certain sense got All for it! The heroic man — and is not every 
man, God be thanked, a potential hero? — has to do so, in all times 
and circumstances. In the most heroic age, as in the most un- 
heroic, he will have to saw as Burns said proudly and humbly of 
his little Scotch Songs, little dewdrops of Celestial Melody in an 
age when so much was unmelodious: 'By Heaven, they shall 
either be invaluable or of no value- — 1 do not need your guineas 
for them!" It is an element which, should and must, enter deeply 
into all settlements of wages 1 ere below. They never will be 'satis- 
factory' otherwise; they cannot, O Mammon Gospel, they never 
can! Money for my little piece of work 'to the extent that will 
allow me to keep working'; yes, this — unless you mean that I shall 
go my ways before the work is all taken out of me; but as to 
'wages'! — ! — " 

In spite of competition's whip being absent there will be fewer 
loafers and tramps than in our time. In Dr. Rossi's report of a 
Brazilian anarchist colony's doings he specially mentions that" the 
members worked too liard, because each felt himself under the 



SOCIALISM AND TRUSTS. 



245 



watchful eyes of his co-workers. Such fears of loaftng often are ex- 
pressed by people who never did an honest day's work in their life. 
The daughter of an English Squire advanced, in answer to one of 
my addresses, that the old "Mark" was broken up by the lazy fel- 
lows who would not work. * I simply drew her attention to the 
amount of labor done by England's landlords. I might have told 
her the story of the American who had asked an Englishman, whose 
objection against America was that it had no gentlemen, what he 

' meant by "gentlemen." "Aw, aw, men who do nothing, you know!" 
"Oh," said the Yankee, "we have got them, too; only we call them 
tramps!" 

We are also told that in the communistic commonwealth some 
will .have to perform unpleasant work, that all cannot enjoy certain 
delicacies, or live in favored locations. We might ask whether — 

^in pur world — everyone is exem_pt from unpleasant work, and 
whether all kinds of enjoyments are accessible to any who desire 
them. But socialism is not communism, and though communism 
could hardly make things worse in this respect than they are, so- 
cialism would decidedly improve them. Those who do the un- 
pleasant work would get better pay and work shorter hours, while 
pleasanter employment would be less remunerated. While to-day 
some bank managers receive over fifty times as much pay as the 
man who cleans our sewers, it might happen in the socialist State 
that the latter finds himself the better paid man, who could aflford 
to purchase the costliest enjoyments and to live in the most expen- 
sive localities. But, no doubt most of the dirty and unhealthy work 
would be done by machines, or under better protection against 
danger, and far less human labor would be employed for such pur- 
poses than in our time. The argument that work which presup- 
poses a high education has to be paid better, to cover the outlay 
thus incurred, loses its force where education and maintenance of 
the student are paid for by the State. I should not have touched 
this simple matter if it were not for the fact that it is just this sub- 
ject which disturbs the mind of more would-be socialists than any 
others of far more weight. For this reason, Robert Blatchford de- 
voted some of his most amusing lines to it in "Merrie England": 

"Under Socialis7n: Who zvill do the disagreeable Work? Who 
zvill do the Scavenging? 

"This question is an old friend of mine, and I have come to 
entertain for it a tender affection. I have seldom heard an argu- 
ment or read an adverse letter or speech against the claims of jus- 
tice in social matters, but our friend the scavenger played a promi- 
nent part therein. Truly, the scavenger is a most important person, 
yet one would not imagifie him to be the keystone of European 
society — at least, his appearance and his wages would not justify 
such an assumption. But I begin to believe that the fear of the 
scavenger is really the source and fountain-head, the life, and blood, 
and breath of all conservatism. Good old scavenger! His ash-pan 



246 THE ECONOMIC AND SOCTAf. PROBLEM. 

is the bulwark of capitalism, and bis besoin tbe standard around 
whicb rally tbe pride, and tbe culture, and the opulence of society. 
And be never knew it; be does not know it now. If be did, be 
would strike for another penny a day. We have beard a good deal 
more or less clumsy ridicule at the -expense of the socialists. We 
have heard learned and practical men laugh them to scorn; we 
have seen their claims, and their desires, and their theories held up 
to derision. But can any man imagine a sight more contemptible 
or more preposterous than that of a civilized and wealthy nation 
coming to a halt in its march of progress for fear of disturbing the 
minds of the scavengers? 

"Shades of Cromwell, of Langton, of Washington, and of 
Hampden! Imagine the noble lord at the head of the British Gov- 
ernment awing a truculent and radical Parliament into silence by 
thundering out the terrible menace: 'Touch the dustman, and you 
destroy the Empire!' Yet when the noble lord talks about 'tam- 
pering with the law of political economy,' and 'opening the flood- 
gates of anarchy,' it is really the scavenger that is in his mind, al- 
though the noble lord may not think so himself — noble lords not 
being always very clear in their reasonings. For just as Mrs. Part- 
ington sought to drive back the ocean with a mop, so does the Con- 
servative hope to drive back the sea of progress with the scavenger's 
broom." 

After all, everything depends on the degree of social recogni- 
tion bestowed on occupation, and if scavengers are as much thought 
of under socialism as other tradesmen, there is no reason why many 
should not prefer scavengening to certain other occupations which 
are much sought after at present. The knacker's work is still more 
unpleasant than the scavenger's and yet not more unpleasant than 
that of the anatomist, with the only difference that the latter's 
business requires a lot of brain exertion, which the knacker's does 
not. Now, on the same school benches we find boys who would 
rather do this unsavory work without racking their brains in addi- 
tion, sitting side by side of others who delight in intellectual exer- 
cise. The ones will rather be knackers; the others anatomists. For 
pay, the hangman and the ofificer kill, in the State's employ; the 
one in perfect safety, the other at the risk of his life. But are there 
not plenty of FalstafTs who prefer to kill without any personal dan- 
ger to themselves? When everyone has become penetrated with 
the idea that any kind of honest work is honorable, there will per- 
haps be as many applicants for work now considered the most de- 
spised as for that presently regarded as the most conducive to social 
esteem. 

Another objection often heard is that nobody would save under 
socialism. In Richter's book there is actually a description of a re- 
volt caused by 'the confiscation of savings, as if the vast majority 
of workers in our time could save anything worth mentioning, and 
as if saving were to be precluded in the social commonwealth! Un- 



SOCIALISM AND TRUSTS. , 247 

der communism the saving would be done by the community, not 
by the individuals; and under socialism, while the community would 
be the principal saver, individual saving would not be precluded. 
Every one gets credit for his work, upon which he may draw at 
leisure, spending his income when and how he pleases, and we can 
safely assume that even individual savings in the socialist common- 
wealth will be much larger than under the existing system, because 
earnings will be much higher and more general. Certainly there is 
one great difference between the savings of the two periods. The 
savings of the socialist commonwealth do not breed; they do not 
yield any interest; they do not enable the saver to extort tributes 
from other workers. They represent stores put aside during times 
of abundance for the days of want, on the principle we observe in 
the animal kingdom. To be sure, man has made a great progress in 
the art of saving. Instead of hoarding perishable goods, of which 
part will prove to have been destroyed or stolen when the saver 
wants to consume his stock, he lets his savings take the shape of 
means of production, whose use more than covers the cost of stor- 
age and preservation, so that when the time of consumption ar- 
rives the saver can obtain the full' amount due to him out of the 
day's production. This process, which we can observe in our pres- 
ent world, would find its counterpart in the social commonwealth, 
but without the interest now paid to the saver. I have already 
treated this subject amply in Chapter V. 

If there are antagonists of socialism to whom the impossibility 
of saving causes heartburn, there are others who find in saving 
their, principal argument against communism, the only kind of 
socialism they ever heard of. Who has not met with that idiotic 
argument which forms the stock-in-trade of the ordinary Philistine: 
"And if you divide everything to-day, you will soon have again 
rich and poor men. Some would be thrifty and would save, while 
others would spend all, so that soon the old conditions would re- 
turn." What are you to say to people who do not even know that 
communism does not mean division, but throwing together? 

Under socialism, personal saving will certainly yield advan- 
tages to the thrifty, and there will probably exist more rich men 
than in our time; but there will be no oppression of the less favored 
brethren, because one man will no longer depend on another for 
the means of living. In fact, there can be no poor where society is 
so wealthy that it can secure a certain minimum to all. This min- 
imum might include as much as a house, with garden, plain furni- 
ture, clothing and food. Our productive power is so enormous that 
a deduction from individual earnings for such a purpose would 
hardly be felt. 

The mere conception that we should have to take from the 
rich to provide for the poor proves how little such enemies of social- 
ism know of the facts in point. We have neither to meddle with 
our existing wealth nor with our new wealth at present produced 



24.8 THI-: l-X'ONOMTC AM) .S(K'I.\r, 1M<( ) i; LKM. 

from day to day. but with the pc^tential wealth, tlie wealth which 
could be created under improved conditions, when once the ob- 
stacles to free production arc removed. Instead of confiscating 
wealth, society would only destroy obstacles to the production of 
wealth. There is a great difference between wealth, the concrete 
product of labor, and wealth, the capitalization of tribute-claims. 
We have seen in previous chapters how the latter dangerous class 
of wealth arises and how the reforms therein treated will destroy 
the factors out of which this kind of wealth is created. Wealth, the 
concrete product of labor, can never be productive of any perma- 
nent danger; not so much because of its evanescent nature due to 
time's destructive powers, but because its possession in no way 
hinders others from producing the same kind of wealth. The wealth 
which consists of tribute-claims, however, plays a most ominous 
part in our economic and social relations, for it is imperishable as 
long as the laws subsist which form its basis; and its possession not 
only enables its owner to extort the product of others' labor, but 
entails also the still more formidable right of absolutely preventing 
the exercise of this labor. The workers need not grudge the exist- 
ing wealth of the rich, whether it be justly or unjustly got, but they 
have a right to claim that monopolies of all kinds be abolished 
which enable the rich to exploit them, and, what is much worse, to 
prevent them from producing wealth. No wealth is to be taken 
away from the rich, only obstacles to the general production of 
wealth. It is not a question of dividing the existing stock of goods, 
but one of opening the fiood-gates of unlimited wealth and permit- 
ting an inflow far exceeding the present totality. 

The enemies of socialism forget that, to a certain extent, we 
are already living within the boundaries of the socialistic state; that 
it is no more a question of whether we shall obtain socialism, but 
how far socialism is going to be extended. Sydney \\"ebb showed 
in his pamphlet, "Socialism in England," which appeared in April, 
1889. to what extent at that date one. of the most individualistic 
countries of the world had adventured into socialism: 

"Besides our international relations, and the army, navy, police, 
and the courts of justice, the community now carries on for itself, in 
some part or another of these islands, the post office, telegraphs, 
carriage of small commodities, coinage surveys, the regulation of 
the currency and note issue, the provision of weights and measures, 
the making, sweeping, lighting, and repairing of the streets, roads, 
and bridges, life insurance, the grant of annuities, ship-building, 
stock-broking, banking, farming, and money-lending. It provides 
for many thousands of us from birth to burial; midwifery, nursery, 
education, board and lodging, vaccination, medical attendance, med- 
icine, public worship, amusements and burial. It furnishes and 
maintains its own museums, parks, botanic gardens, art-galleries, 
libraries, concert halls, markets, fire-engines, lighthouses, pilots, 
ferries, surf-boats, steam-tugs, life-boats, slaughter-houses, cemc- 



SOCIALISM . AND TRUSTS. 249 

teries, public baths, washhouses, pounds, harbors, piers, wharves, 
hospitals, dispensaries, gas works, water works, tramways, telegraph 
cables, allotments, cow meadows, artisans' dwellings, common lodg- 
ing-houses, schools, churches, and reading-rooms. It carries on and 
publishes its own researches in geology, meteorology, statistics, zo- 
ology, geography, and even theology." 

I may add to this enumeration that Glasgow provides hydraulic 
power, and from other countries: the corporation of Vienna has a 
brick-yard, Tarnopol a municipal bakery which provides citizens 
with bread at cost prices, and Valparaiso has a municipal music 
school. From its municipal horse-races Paris draws $50,000 an- 
nually, and its municipal nurseries, segar factories, and green- 
houses are profitable. Life insurance factory laws, poor laws, public 
health acts, workers' insurance against accidents and sickness, New 
Zealand's arbitration acts, old age pensions, grading of dairy and 
gold products, are all of them socialistic measures. 

In Germany fire insurance is not only carried on, but to a cer- 
tain extent it is even monopolized by the State, who makes it ob- 
ligatory for buildings. Its railways, which are almost all owned by 
the State, yield an enormous revenue and are well managed; so are 
the State mines and the domains. In difTerent countries the tele- 
graph and the telephone are worked by the post-ofifice, that gigantic 
monopoly which the world over is managed by the State. Then 
there are the national salt, tobacco, matches, and alcohol monop- 
olies and other socialistic organizations. 

The enemies of socialism, when they talk about the injustice 
done to the diligent and intelligent worker, whose surplus product 
is to be accaparated for all under socialism, forget two things. The 
first is that by far the greatest number of our intelligent and diligent 
workers are now deprived of .the lion share of their product to the 
benefit of a minority, and secondly, that at any event a very small 
fraction of the product is due to the individual exertion of the worker. 

How much is produced by the most skilful worker, manual or 
intellectual, after we deduct the parts which past generations have 
had in his work: From the time when first a savage discovered the 
use of fire to that when this fire first made the ore yield its metal? 
Prom the stone hammer with which the hot metal was shaped, to 
the mighty steam hammer which, though capable of gently breaking 
a nut's shell, could have smashed the powerful mammoth into atoms 
within a few minutes? From the firebrand that made darkness visi- 
ble, to the sun-like arc light? From the clumsy sledge — made of 
branches — wearily dragged across the wilderness, to the express 
train fiying with the speed of the hurricane? From the fish-bone 
needle to the sewing-machine? From the word of mouth heard 
with difficulty at the distance of a few hundred yards, to the wire- 
carried whisper that is understood a thousand miles away? From 
the pointed fiint scratching signs on a slab of stone, to the type- 
writer and cylinder press? 



250 I'Hl' F.CONfnnC AND SOCrAT- PROBLEM. 

Let us not forg^ct that about twenty years is the longest monop- 
oly given anywhere by law to the inventor of the most wonderful 
improvement, and after this period anyone has the right to its free 
use. Furthermore, that under land nationalization the work per- 
formed by Nature, all the advantages due to location and to the 
efiforts of the community will be common property. The part of 
the product due to the personal work of the man of one generation 
is so small that, under such conditions, it will not be worth while to 
separate it at that future time when unfettered production has cre- 
ated additional progress, compared with which all that has been done 
in the past may appear insignificant. The mere expense of keeping 
accounts will then be far greater than any possible benefit expected 
from a discrimination between the different workers' rights in the 
product. 

But technic progress is only a small part of the immense debt 
of gratitude due by the individual worker to the past and present 
work of others. The product of his own personal work is merely 
plucked by him from that wonderful tree which we call our Ck'ilisa- 
tiou, of whose roots the inventor's activity only forms one fraction. 

From the battle of the first savage who killed a cavern bear 
with a stone, to the valiant little body of Spartans defending Greek 
independence against Persian despotism at Thermoplyae; from there 
to the common soldier unknown to fame who fell at Gettysburg, or 
to the German peasant whose strong arm helped to repel French 
aggression — millions of silent partners have contributed to the earn- 
ings of a Carnegie and Vanderbilt, and even to those of the hum- 
blest laborer. From the first shepherd who, in the silence of the 
night, ruminated over the nature of the distant shining orbs, to a 
Copernicus, Gallileo and Newton; from the unknown bard or bards 
to whom we owe the Iliad and Odyssey, to a Shakespeare and 
Goethe; from the philosopher forced to drink the hemlock cup and 
from the glorious martyr of Calvary, down to the humble writer of 
our own days starving in a garret; all have contributed their share to 
the root fibres from which sap has been conducted to the tree Civil- 
ization. All these have helped to produce the dividends paid by 
the great steel trust or by the farms, factories, railroads, ships, etc., 
of the world. 

If I do not add "and the wages of their workers," it is because 
it is more than -questionable whether — taking it all round — much 
has been added on this field by civilization. Some wise men even 
claim that the average savage, in the full enjoyment of the freely 
accessible resources of nature, is better off than the civilized worker 
of our time, with starvation w^ages and the permanently present 
Damocles' sword dangling above his head of finding himself with- 
out employment. For all that, there is also a lesson of modesty for 
our socialists in the above passage, which might be brought home 
to them when they eternally trot out their "man with the horny fist" 
as the creator of all wealth. I well remember the day when a hun- 



Socialism and trusts. 251 

cired such men with the horny fist swung the flail from morning till 
night, imtil one man — with very soft hands, perhaps, but with brains 
— brought forth the idea of a machine which automatically now 
does the work of our hundred horny fisted ones; does it, too, without 
murmuring or of pride in its achievement. And the steam plow, 
the reaper, the sowing machine? Or the brick making machine, the 
saw-mill, the steam dredge and digger? And how about the horny 
fists that made all these wonderful steel and iron giants? Why, it 
once needed a hundred of them with chisel and file to plane one 
single plate, forming a part of some machine, until some soft-handed 
but hard-headed gentleman brought out the planing and the milling 
machines, of which each single handed performs better work than 
the hundred horny fisted ones ever did in the same time. I know 
that all these machines are built and worked by the horny fisted, and 
all honor to them; but with what right do they, each of them, claim 
the rights of the hundred whose place they took, or rather of the in- 
tellects who, inventing, constructing, organizing, often risking their 
all in the attempt, mitigated the waste of human energy employed 
for the gross needs of our bodies, through the application of those 
wonderful God-given endowments which dififerentiate man from 
the beast? 

When we take all this and much more into consideration, we 
shall cease to wonder at the strange simplicity of those single-minded 
men who believe that a time will come when, saviag all bookkeeping 
drudgery, we shall no more discriminate between the individual 
mite's and the community's share in the production of the immense 
wealth-store flowing with such abundance that a few hours' daily toil 
supplies more — for all — than the greediest could consume. Com- 
munism may after all see its day arrive, and God's Kingdom, the 
milennium, be given us on this side of the grave. 

We may not even have to w^ait for that problematical date usu- 
ally given by the average bourgeois: "It may do when once men 
are axigels, but," etc. Nobody ever gave a better answer than Henry 
George in his "Standard." He presented as an object lesson the 
observations he had made on the Pacific steamers. At that time, it 
seems, their steerage passengers were not oversuppHed with food, 
so that at all meal times they fell upon the victuals like ravenous 
wolves in a "the devil take the hindmost" struggle, while the saloon 
passengers who sat at a well-supplied table d'hote, behaved quite dif- 
ferently, eating and drinking as educated people are in the habit of 
doing. And yet it was not character or education which was re- 
sponsible for this remarkable difiference of behavior, but the inequal- 
ity in the food supply. George was confident that if the positions 
were changed, if the saloon passengers had been transferred to the 
steerage and the steerage passengers to the first cabin, we should 
soon have seen the new steerage passengers fall upon the scarce 
victuals like voracious animals, and the former steerage passengers, 
now well provided, politely hand each other the dishes before they 



252 Tin-: i':c()N()Mic a.vd sociaf, problem. 

served themselves, and in every way behave in as kindly a manner 
as their predecessors. If once everyone can with ease procure as 
much of the necessaries as well as of the luxuries of life as he de- 
sires, the disappearance of the mad struggle for the means of exist- 
ence will result in a totally different picture of human character from 
the one we are used to. 

My friend, John Richardson, (jf'Lincoln, England, in liis excel- 
lent book, "How it can be Done,"* recognizes fully the difficulty of 
introducing complete socialism to a generation brought up under 
the individualistic system, and proposes to begin by educating the 
growing generation for socialism. The system of schools he advo- 
cates is highly ingenious. Its main feature is that not only the 
mind is to be fed, but also the body; for it is impossible to develop 
starved brains. His pupils are fed. clothed, and, if necessary, lodged 
at the school. Great attention is to be devoted to physical exer- 
cises, so as to grow a healthy body as well as a healthy mind. The 
expenses incurred are obtained by taxation in the beginning, but 
the productive work carried out by the pupils is supposed gradually 
to make the schools self-supporting; for in the highest class, the con- 
tinuation school, half the time is devoted to the different branches of 
knowledge, and the other half — four hours a day — is spent in the 
fields and workshops, where all trades are taught. At the same 
time — unlike the system usually pursued in our present industrial 
schools and technical institutes — what is produced in the workshops, 
gardens, fields, laundries, dairies, kitchens, etc., is to serve for prac- 
tical use, to feed and clothe the pupils, and to sell in the open market 
so as to pay for outlays. This system is not only of great pecuniary 
advantage, but offers much more encouragement to the pupils than 
the ordinary methods which utilize their work for educatitjnal pur- 
poses, but otherwise mostly waste its results. 

The children begin in the elementary schools, where they spend 
four years. Froni these they come into the second-grade schools, 
and then they proceed to the continuation schools, where they stay 
between the ages of 15 and 18. Above these is the university, where 
the pupils are from 19 to 21 years old. Here, too, a certain amount 
of productive work, enough to pay for the tuition and maintenance 
of the pupils, has to be given, unless a corresponding fee is paid. 
This would mean no loss of time for the studies, for onlv a certain 
amount of knowledge can be forced into the brain, and those who 
spend half of their time at work which exercises the body, while it 
relieves the mind, will finally get far ahead of those who cram from 
morning till night. 

Before I leave this part of the subject it may not be amiss to 
point out that, just as there is no strict dividing line between indi- 
vidualism and socialism, there is also none between socialism and 

*Tlie seven best chaplcrs Iiave been publisbed in a penny edition under 
the title. "The F.ducntion Problem and its Solution" (Twentieth Century Press, 
Ltd., London and Glasgow). 



SOCIALISM AND TRUSTS. 253 

conmnmism. Though rational socialists want to pay each worker 
according to the work done, many of them demand payment accord- 
ing to the time given to a certain class of work. This is the system 
of many trades unions; practically the communists' demand of "each 
according to his ability." Now, our productive power has grown 
to such dimensions that with the elimination of the waste due to the 
existing system, or rather want of system, one hour's daily labor 
supplied by each adult would provide all with the necessaries of 
life. An other hour would add all reasonable luxuries. Certainly 
two hours a day do not exhaust the ability of any healthy worker 
and thus we could easily provide what communists demand in the 
second part of their motto: for "each according to his necessities," 
without thereby limiting the workers' ■liberty to freely produce and 
exchange during their spare time — i. c, 22 hours out of 24 — in ex- 
cess of the quota supplied by the community whatever the satisfac- 
tion of their fancies might further demand. 

The antagonism between communism and socialism, yea, even 
between communism and individualism, is, after all, not one of prin- 
ciple, but one of conditions. The inhabitants of a tropical island, 
Mdiich supplies man's needs without any labor on his part, might 
enjoy nature's bounties in common, each taking according to his 
wants. Any other system would not be individualistic, but monop- 
olistic. However, their, communism would not be disturbed by al- 
lowing the woman who fabricates a sunshade because she prefers it 
to the palm leaves used by others. The contrary would not be com- 
munism, but robbery. In her case, but under such conditions only, 
where all have plenty, and not under those for which they were 
written, where the large majority was in want, where often those 
who worked liardest obtained the smallest, the drones the largest 
share — the vvitty lines of Ebenezer Elliott, the Corn Law rhymer, 
might be justified: 

"What is a Communist? One who has yearnings 
For equal division of unequal earnings. 
Idler, or bungler, or both, he is willing 
To fork out his penny, and pocket your shilling." 

The fact that I am not an enemy of socialism should attach 
weight to my opinion, that whatever the future may bring forth, the 
practical programme of our day does not call for such a thorough 
revolution of the existing system as would be involved in the social- 
istic demand for the exclusive ownership and use of all means of pro- 
duction and distribution by the State. If I had no other reason to 
offer for this conviction, the mere fact ought to suffice that the great 
majority of our generation is opposed to such a revolution, a major- 
ity which includes the most intellectual portion of the community. 
Moreover, 1 have shown that great progress can be effected without 
giving Up the competitive system. Where through-tickets are un- 
obtainable we have to book from static^ti to station. 



254 T.-j; ECOXOMIC AM) SOCIAL PROI'.LEM. 

Not that I should like to advocate competition in the whole 
field. Even the extreme Manchester school draws the line at the 
post-office, well knowing that the waste incurred by competing post 
offices would be nnich greater than any possible saving through bet- 
ter organization. If ten competing post-offices brought us each one 
letter from different parts of the world, a letter would cost far more 
than if brought by one post-office, centrally managed. In that all 
are agreed except a few extreme individualists, who. judging from 
the fact that for a time, through a loophole in the law, private letter 
deliveries in cities have underbid the post-offices in some parts of 
Germany, argue that they could do so in the general delivery. It 
is evident that, where the profits from the city delivery help to pay 
the losses from deliveries at -great distances or on difficult roads, 
those who undertake the profitable business only can afford to man- 
age that specialty on better terms than where they would have to 
do the whole work indiscriminately. 

From the mere transportation and delivery of letters, parcels, 
etc., to the sale and delivery of merchandise is a long step; but even 
this the state has already taken. For instance, the wholesale and 
retail trade of tobacco is monopolized in France, Austria-Hungary, 
Italy, Spain, Rbumania and Japan. The great economy in the cost 
of distribution effected by the post-office would of course be enor- 
mously multiplied if extended to merchandise; and there is no rea- 
son why this economy should not be so adopted. It is hard to see 
where the waste, which would be caused through ten letter carriers 
doing the effective work of one, is different from that incurred in 
sending ten milkmen, bakers, butchers, and grocers through the 
streets, each only serving a few houses and then passing into an- 
other street, there to seek a few customers, instead of having one 
service for each street or quarter. Or why ten post-offices in one 
little town would be more wasteful than are the ten or even twenty 
groceries which now do a business that one could efficiently at- 
tend to. 

Competition in production and competition in distribution are 
two entirely different things. Whereas in the one case individual 
efforts result in improving the processes of production, with the 
effect of reducing cost price or bettering quality, competition in dis' 
tribution only wastes power, increases price and decreases quality. 
Whether State production could do as efficient work as private en- 
terprise may be open to discussion; but there can be no doubt that, 
under a State monopoly of distribution the average State official 
could do far more effective work than the best of merchants. 

To those who can fully appreciate the great qualifications re- 
quired for a successful pursuance of the mercantile career, and who 
at the same time have had some experience of official red tape, my 
statement must appear rather paradoxical, and yet it is not difficult 
to prove its correctness. The greatest part of our merchants' ability 
is required for the purpose of fighting competition — a function en- 



socialism' and trusts. 255 

tirely done away with under State distribution, which would be mere 
routine work, as is the case with the post-office. Capable business men 
would certainly be required in the central office to assort and to 
place the orders; but outside of this, any ordinary functionary could 
do the work required. Where no cajoling of customers is needed, 
because nobody can attract them elsewhere, where the art of pressing 
on them things they do not want — inferior qualities at high prices^ 
is of no use, the remaining work: the showing of goods, taking or- 
ders, shipping and money-collecting operations certainly does not 
require great genius. All this has been well proved in the tobacco- 
monopoly countries. Everything is successfully organized there in 
the way here indicated, and the public are well served. There are 
only as many selling places as are required; in France, for instance, 
one per 900 inhabitants ; in Austria, one per 400. A commission of 
10-15% is paid, and persons who have served the State or members 
of their family are employed, thus saving pensions to the State. The 
prices are not unreasonable; but if the large profit mostly obtained 
by centralization and consequent absence of waste in distribution, 
instead of being made to yield immense amounts to the State — over 
a million a day in France — and a proportionate saving of taxes, found 
its expression in a reduction of prices, no country in the world could 
supply cigars as good and cheap as are sold under the tobacco mo- 
nopoly. Even as it is, I have heard the system praised by smokers 
as giving them the advantage of finding at once anywhere in the 
whole country cigars of the same quality for the same price ; whereas 
elsewhere it takes them weeks in a new place to find exactly what 
they want. 

(This was written before the days of the tobacco trust, which 
improved things in this respect, but also supplies the proof that the 
State's monoply does not shut off free competition, but private 
monopoly. The final difference is found in the fact that millionaires 
pocket the profit which otherwise would accrue to the community 
■ — an argument made use of by socialists in regard to production and 
distribution in general.) 

Now, what can be done for one article can certainly be done 
for a hundred — in fact, for all kinds of goods — and it is evident that 
the saving must increase with the extent of the monopoly. If party 
shibboleths, through the power of habit, had not prevented discrim- 
ination, socialists would long ago have noticed that when they speak 
of the waste through our "anarchic system of production," they 
mostly illustrate their meaning by giving examples taken from dis- 
tribution. 

In this department facts speak too distinctly to escape anyone's 
notice. A walk through one of the principal thoroughfares of a 
modern city will teach people who never read a single treaty on 
economics that an enOrmous waste is going on which needs looking 
into. We count 20 shops selling the same class of goods, where one 
could well do all the work, with a saving of 19 rents, 19 advertise- 



256 THE ECONOMIC AND SOCIAL I'KOIU.EM. 

nu'ius, at least 10 salesmen, and so on as to heatinj^, lighting, etc. 
But that is only what we see at first sight. Behind this row of shops 
we can find quite an army of commercial travelers who supply the 
goods which they ofifer to the public, spending millions for railroad 
fares, hotel bills, etc. Behind these we have another army of whole- 
sale houses and agents, with their rents, advertisements, book- 
keepers, correspondents, etc.; and only after we have got beyond 
this last barrier do we reach the producer. Even here we have not 
done with the waste in distribution. Commercial travelers have to 
be engaged to visit the wholesale houses; advertisements swallow a 
considerable amount; coi respondents, salesmen, rents of show- 
rooms, exhibitions, etc., still further swell the amounts which have 
to be. added to the original price of goods to cover the expenses of 
distribution. \'arious calculations have been made to find out the 
addition to first cost paid "by the consumer of the product, and they 
vary from 30% to 100%. With certain articles 900% is added, i. c, 
the final price paid by the consumer amounts to ten times the 
original cost. Let us take the middle course,, and assume the addi- 
tion to be 667^% on the average, which means 40% of the retail 
selling price. I quote a few calculations from Professor Adler's 
"Kampf wider den Zwischenhandel" ("Battle Against the Middle- 
man"): "Taking 100 as the original cost price of the goods, the fol- 
lowing figures show their prices at retail: Simple victuals, 120-150; 
kerosene, 120; cofifee, 150-200; ordinary cotton goods, 120-150; 
woolen goods and more expensive cotton goods, 150-200; hardware 
and fancy goods, 200-500; alcoholic licjuors, 200-500; tobacco and 
cigars, 150-500; glass goods, 200-300; paper, 150-300; books, 200- 
300; pamphlets, 300-500, etc." 

He thinks that the average addition to original cost made by 
the middleman amounts to 50%. Another author, Gustav Maier. 
states that in Zurich, a city of 150,000 inhabitants, i million francs 
a year are s])ent for advertisements in the newspapers, while those 
of another kind may amount to as much again, so that of the 30,000 
families each had to spend about 65 francs on this head alone. The 
increase of middlemen in Germany from 1881 to 1891 has been al- 
most 40%, while the increase of the population in that period has 
only been 11.65%. 

I add a calculation given by W. G. Moody, before the United 
States Senate Committee of 1885: "A farmer sells his wheat to the 
middleman at from 40 to 60 cents a bushel, and it goes into con- 
sumption at $1.50 a bushel. We, the consumers, are paving here 
$10, $1 1, $12 a barrel for flour; and as there are 4)/ bushels of wheat 
in a barrel, anybody can make the estimate of how much is paid in 
the way of toll." 

Now let us see how^ much could be saved of this percentage if, 
with production left to private enterprise, distribution were monop- 
olized by the State, just as France. Austria. Italy. .Spain. Japan and 
Roumania monopolize that of tobacco in its different preparation-^. 



SOCIALISM AND TRUSTS. 257 

That in these countries a part of production is also monopohzecl by 
the State need not disturb us, for the system of distribution would 
not be changed in the least if the production were entirely left to 
competition. No merchants, no commercial travelers, no advertise- 
ments (except perhaps those of manufacturers who draw attention 
to their goods to induce the public to demand them in the State's 
shops) raise the price, and only as many selling establishments as 
the convenience of the public requires, deal in tobacco and its man- 
ufactures in the above-named countries. There being no credit, a 
lot of bookkeeping and costs of collection are saved. The saving 
must -be greater still where the distribution of all goods is monop- 
olized by the State. Delivery, for instance, being centralized as in 
the post-ofifice, one cart would serve a street where 20 now follow 
each other. The greatest saving, however, would be that in rents; 
not only through having fewer shops, but through paying less for 
the floor rent at each of the few remaining selling places required 
than the present shop has to pay. For two reasons: 

1. There would be no such competition for land to build stores 
on, as only one-twentieth of selling places are needed, and conse- 
quently the ground would not cost more than that used for private 
dwellings. 

2. Immense central magazines of many stories would be 
erected, with elevators, providing more floor space than the present 
average store for the same land surface. This land once bought by 
the State, no landlords could raise rents in proportion with the in- 
crease of profits, according to their present amiable and remunera- 
tive custom. 

3. Attending to customers would require much less of the staff's 
work, and consequently less space. Competition now forces sales- 
people to waste a great deal more of these with each customer than 
would be needed if no more subserviency, and just as much system, 
were shown as the public gets in the post of^ce. I have been told 
that many ladies go "shopping" just for amusement, visiting one 
store after another to price goods, often without buying anywhere. 
A good part of the staff's time is taken up that way. The State's 
store might exhibit books and shelves containing samples and pat- 
terns systematically arranged, which every customer could per- 
sonally examine until quite satisfied, when he or she would simply 
fiill out an order, giving number, quantity, and price. The goods 
would be sold only in certain minimum quantities, or the price would 
be correspondingly increased to pay for the additional work. As 
wages would be much higher, the masses could afford to buy more 
at a time. 

Taking all this into consideration, I think 6% of the retail price 
would suffice for the work of distribution, instead of 40%. Mr. 
William Maxwell, president of the Scotch Wholesale Society, calcu- 
lated that co-operative distribution only costs 7>4%, instead of 
33><2% of private enterprise, without taking into account better qual- 



258 THE ECONOMIC AND SOCIAL PROBLEXf. 

ity. This would not include the saving through the prevention of 
adulteration. I do not discuss the injury wrought upon the health 
of the people by this last mentioned abuse, so intimately connected 
with our present system of distributing merchandise. I leave out 
of sight the innumerable graves dug by this murderous practice, es- 
pecially in this country, even where ministering to the sick is the 
object of the trade. Ghent, in the below mentioned book, quotes 
from Dr. Lederle's statement in "The Health Department," pub- 
lished by the City Club, New York, in 1903, that out of 373 sam- 
ples of phenacetin, purchased from druggists in Manhattan and 
Brooklyn, 315 were found to be adulterated or to be composad of 
substances other than phenacetin. Only 58 were pure. Wood 
('methvl) alcohol is used for ethil alcohol. It is a rank poison, known 
to have caused Saint Mtus' dance, paralysis, and total blindness. It 
is exceedingly harmful even when used externally. An investigation 
showed that 35.5 per cent, of all from whom samples of various 
drugs were bought for analysis were selhng adulterations. I limit 
myself to the mere financial aspect of the case. W. J. Ghent, in 
"Mass and Class," pp. 181-2, has the following estimate: 

"Finally. Mr. A. J. Wedderburn, a special agent of the Depart- 
ment of Agriculture, who made a thorough investigation into the 
whole subject, reported in 1894 that 'these sophistications can be 
truthfully said to be as broad as the continent,' and that the extent 
of adulteration was not less than 15 per cent., approximating 
$1,123,000,000 yearly. This total, tremendous as it is, relates only to 
food, and is exclusive of the adulteration in wine, whiskey, beer, 
tobacco and drugs, and the glaring fraud of patent medicines." 

The most stringent laws have never been able to prevent adul- 
teration. It is a graft intimately connected with private trading, 
and can only be effectually eliminated through nationalization of 
distribution. The Government's experts in each department would 
exclude from purchase adulterated goods of any kind. Where the 
public demands an adulterated article, the real contents should be 
marked on each package; then the real value only would be paid 
and demanded. 

We have to take into account also the saving made by the pro- 
ducers, who would only have to send wagon-loads of their goods to 
the State's magazines, without a penny's cost for wholesale selling 
expenses, and without the trouMe and charge of packing and for- 
warding smaller lots all over the country. Another great saving to 
the producer woidd be specialization, rendered possible through 
central buying. The buyers of the State would have before them 
the orders from all the selling places; they could easily assort them, 
and arrange with the manufacturers that each gets an order for cer- 
tain numbers only; so that instead of hundreds having individually 
to manufacture a hundred numbers, each of them will only produce 
one number, and thus save a large amount of cost through a cor- 
respondingly increased sub-division of labor, allowing special ma- 



SOCIALISM AND TRUSTS. 259 

chinery, greater skill applied to the work, an easier supervision, etc., 
a great advantage already made use of by the trusts, an advantage 
obtainable without the nationalization of production by the mere 
nationalization of distribution. 

There is no other way of saving the independent artisan, who 
once played such an important part politically and socially. There 
are few articles of which one single number could not be made as 
cheap in a small workshop, if it were made as a specialty, as in a 
large factory or group of factories. Better supervision, cheaper labor 
(not lower wages), and saving of expenses, which the large place 
cannot avoid, would more than make up for certain disadvantages, 
if it were not for one insuperable difficulty, and this is the impossi- 
bility of selling the specialized article in competition with the larger 
concern, which sells the whole line at not more expense than would 
be incurred by the spec/alist for the sale of his single number. In 
fact, in most cases, he would not obtain an order for this single 
number, even if he undersold the large concern who sells the whole 
line; for the customer would find it too much trouble to buy from 
a hundred parties what he can obtain from one. Such an under- 
selling is still more difficult where the large concern resorts to the 
dangerous and per^dious artifices used by our trusts: temporary 
price-cutting, follov^'ed by high prices after the ruin of the compet- 
itor has been accomplished. The boycott of dealers who favor com- 
petitors and the employment of blackmail, which enforces compliance 
through the threat of underselling and boycott, would be avoided. 
Here, too, the State's selling monopoly would save the small pro- 
ducer. Boycott and blackmail can be used to intimidate a smaller 
competing dealer, but would fail against the State. The dodge of 
temporary price cutting can be cut off by the State's continuation 
of orders to the small producers at the regular price, unless the 
trust guarantees the lower price for an extended period, which it 
cannot where it has no greater facilities than the small man, where 
neither a monopolization of natural resources nor that of specializa- 
tion procures an advantage. 

Our next task is to investigate the relation the laborer's wages 
bears to his product of merchandise. Only in this way can be found 
the relation of the purchasing power of the masses to their produce. 
In my former writings I had given this relation as being be- 
tween one-fifth and one-sixth, which was optimistic when com- 
pared, for instance, with the calculation of Bersford in his "Pocket- 
book of Statistics," who gives the relation of wages to retail prices 
as I3>^ to 100, about one-eighth. Bersford fell into the same error 
to which I succumbed, and which the latest American census tables, 
those of 1905. for the first time permitted me to correct, all the pre- 
vious ones having shown a deficiency in this respect. This census 
enables us to separate the manufactures which form the raw mate- 
rials of other manufactures (in German "Halbfabrikate") from the 
total of manufactures, which by their inclusion in the old tables 



260 THE ECONOMIC AND SOCT.XL PRORLEM. 

falsified the result. Tor instance, the tables gave the leather twice; 
first as the product of the tanner and then as part of the shoe- 
maker's and belt manufacturer's product, except where the shoe 
factory had its own tannery, in which case the leather was not given 
at all and correctly figured only in the value of the shoes. The 
wages paid out for raw materials, on the other hand, were omitted 
because they figured in the census of agriculture and mining, or 
not at all, if the material was imported. Either the raw materials 
had to be deducted from the total of manufactured goods or the 
wages spent on them had to be added to the total of wages, and 
neither had been done. After making these rectifications, and after 
adding to the price the retailer's profit. I found the relation of wages 
to retail price to be one to four, which is bad enough, but not quite 
as bad as it at first appeared. It means that the workers can buy 
only one-fourth of what they produce, when measured by the price 
they actually pay for goods: the retail price. 

If the 34% which centralized selling could save in the field of 
distribution were kept from being gobbled up by the capitalist and 
landlord, through land nationalization and currency reform, as they 
W'Ould be without these reforms, the saving of 34% in distribution 
could reduce prices 34 per cent, or could increase wages 136 
per cent. If as much as 9 per cent, of the saving were used 
for fiscal purposes — which would suffice for national public ex- 
penses and would permit to relieve the people of all other na- 
tional taxes — then wages could be doubled. The immense in- 
crease of consumption thus obtained would create such an addi- 
tional demand for goods of all kinds that those displaced middlemen 
who are not required for the national work of distribution, and the 
unemployed workers would find remunerative productive work, while 
such a reform under present conditions, when every saving merely 
swells rent and interest, not wage account, would simply make mat- 
ters worse, especially for the poor middlemen, most of whom are 
forced into bankruptcy by department and co-operative stores and 
their own frenzied competition, for — as I have already illustrated 
in opening this chapter— anything based on a correct principle must 
produce bad effects so long as w^e disregard such fundamental neces- 
sities as the people's free use of the earth and a means of exchange 
freely accessible to all who want to exciiange their products. 

I have spoken here much of wages, though I know our friends 
in the socialist camp do not like to hear of wages when we look into 
the future. What they really mean, however, when they declaim 
against the Wage System is not so much the system itself, for it is 
by no means certain that where two partit-s join in production, the 
one to whom a certainty is insured in advance is always better ofif 
than the other, who takes what is left after his partner has been paid. 
What the socialist really hales in the wage system is the system of 
low wages. He can hard!\- l;e blamed, though, for his generaliza- 
tion, as the practical bu>ini; s r.ien of the whole world do their bc^^t 



SOCIALl'-M AND TRUSTS. 



261 



to prove the necessary identity of wages and low wages. Of all 
disgusting things I am meeting with in my special field of stud}, 
nothing beats those exhortations addressed to the union man who 
tries to force up wages, in which two points are usually made: i. 
"High wages mean dear products, and the purchasing power of the 
wag^s sinks in proportion to their rise." 2. "If you want too much 
vou will not get anything at all, because we shall not be able to com- 
pete in the world's markets." 

This is the nonsense usually dinned into our ears by employers 
of labor, by economists, by editors of all colors, who generally agree 
on this point at least. 

If wages were the only component of selling price, the argu- 
ment that the worker cannot profit by higher wages, as they must 
result in a correspondingly higher price of everything he buys, might 
be plausible. But wages form only one-quarter of the retail 
price and consequently the increase of the selling price, due to a rise 
of wages, need only be one-quarter of the wage increase. If W 
(wages) = }i F (price), a doubling of W needed by itself only 
raise P to 1% P, which means, that with a doubling of the money 
wage the workers would only pay one-quarter more for their goods ; 
their actual purchasing power would have risen 60 per cent. Now, 
when we consider that such an increase would entail a corresponding 
consumption and thus would make free room for new production, 
more than five-fold in excess of all our exports, not only need we not 
trouble about the foreign market bogey, but we can open before the 
employer's eyes such an immense field of increased business and 
profits to make him grasp the important truth that he is the party 
who profits most by higher wages paid all around. If employers 
understood this, they would combine for the purpose of raising 
instead of reducing wages. 

I attach very little importance to the question what forms pro- 
duction will take, after once the workers of all kinds obtain a fair 
share of the outcome. The probability is that all kinds of forms 
will subsist side by side. There will be production organized and 
carried on by the State or municipality; there will be co-operative 
production and there will also be work under employers, mostly, no 
doubt, with a participation of the employees in the profits of the 
enterprise, a system which forms the bridge from simple employ- 
ment on wages, to co-operative production, as the constitutional 
monarchy is that between absolutism and the republic. 

Let us suppose that all the difficulties, under which present co- 
operating producers are suffering, are removed. They have easy 
access to raw materials, money and credit, and through co-operative 
or State distribution the greatest obstacle in their way, the commer- 
cial work, the hunt for the customer, is eliminated. Under such 
conditions only those employers can keep workers from entering co- 
operative shops whose organizing ability is so great that, in spite 
of paying as much and even more wages than the independent work- 



262 TTIK. FCONOMir AND SOCIAL PROBLEM. 

ers are earning, they can still make higher wages of supervision and 
organization, of management, for themselves than they would re- 
ceive as paid managers from labor-copartnerships. They are, so to 
speak, managers on piece work. 

Where the landlord has gone; where the tribute-claiming capital- 
i.st has disappeared; where the employer is only a skilled worker, 
what becomes of the so-called class war, the most invidious and fatal 
battle cry that was ever invented ; a battle cry which hardens the 
hearts of thousands who, with a feeling of complete solidarity with 
the lowest and poorest, and anxious to fight for their cause, are held 
back by the bitter prejudice manifested towards them. This is 
unjust, because the living men are made responsible for conditions 
due to historical wrongs which created monopolies. It is also im- 
politic, because history repeatedly shows that the men who led the 
proletarians in the battle against oppression belonged to the very class 
which benefited by the existing state of things. From Moses to the 
(iracchi, from Mirabeau to Marx and Lassalle, the most important 
fighters for the masses, their greatest leaders, have come from the 
classes. The fight ought to be against private land-ownership, not 
against land-owners ; against interest, not against capitalists ; against 
monopoly in any form, not against monopolists. If a war against 
persons comes at all into play it would be directed against a small 
number of plutocrats, who, instead of recognizing in time the impos- 
sibility of keeping up anticjuated institutions, risk their all on the 
maintenance of oppressive laws. So much the worse for them; for 
the question whose will be the final victory cannot be doubtful. It 
is their interest to bring about a peaceable compromise, which is pos- 
sible only on the lines here sketched. To them and their coadjutors, 
to that small minority who as yet hold the reins, this book appeals 
in the first instance. I am not conceited enough to hope that it will 
obtain many adherents from the extreme party on the opposite side, 
from the revolutionists. They believe themselves to be right, and, 
to a certain extent, they are. I think that the road here proposed is 
better adapted to the present conditions of the soil, but, in any case, 
the worst road is better than an impassable quagmire. It will be for 
those whose crushed corpses may perhaps have to make the treacher- 
ous soil of present conditions passable to bethink themselves that the 
time for the construction of a good road is not yet past. Will they 
be in time, or will history once more record another set of fools 
who believe that their unaided arms can hold back the express train 
on which the human race is travelling towards its destined goal ? 
God alone can tell ! 

The great change will come: that is certain; only the road as 
yet is hidden from our sight, the road which may lead us through 
peaceable evolution or through a bloody revolution. The choice 
lies still in the hands of the masters, who control the safety valve. 
Sitting on this valve, when the boiler is under a high tension, is not 
conducive to safety and sometimes proves an expensive operation, 



SOCIALISM AND TRUSTS. 263 

as the Southern States once experienced. If the termination of 
chattel slavery had been the result of peaceable compromise, instead 
of a bloody wrangle, ample compensation for the liberation of the 
slaves might have been paid and billions of treasure, besides untold 
human lives, could have been saved. Extreme measures, such as 
granting the political franchise to the existing negro generation, 
with the inevitable reaction we are witnessing, might in such a case 
have also been postponed. 

A task of infinitely greater magnitude than the setdement of 
the negro problem would await the victorious socialists at the con- 
clusion of a civil war brought about by our existing economic 
anarchy. Forcing their ideals upon a nation, united in the attack 
against existing abuses, but hopelessly divided in regard to the 
necessary work of organization, would be found a Herculean task. 
Attempts at any progress for which the majority is not ripe are 
followed by reactions, such as overtook England in the seventeenth, 
and France in the nineteenth century. The road of peaceable evo- 
lution is far safer and better adapted to an undeveloped marching 
capacity of the people. 

It will not be the same everywhere. In continental Europe, 
where State ownership of railways, telegraph and express service, 
municipal ownership of tramways, waterworks, gas and electric 
lighting have more and more taken the place of private ownership, 
they have already found out how little this special progress in State 
socialism has helped on real social reform, and millions of voters 
are pressing forward for more radical work. The United States 
and England will yet learn the same lesson, unless the octopus 
swallowing business is carried out on a far wider scale than that at 
present held in view by radical democrats, who are considered hope- 
lessly in advance, though they only demand what has been attained 
in countries far behind theirs in political progress; in countries 
where even the most conservative would not advocate a return to 
an antiquated system which delivered the control of the arteries „ of 
commerce into the hands of private monopoly. 

Of course, every efTort ought to be made for the nationalization 
of our railways, telegraphs, parcel delivery, savings-banks, as well as 
our fire- and life-insurance now in private hands, for the municipali- 
zation of our tramways, waterworks, gas and electric lighting, but 
only as a side issue, not as the main programme. Currency reform 
ought to take a foremost place if we wish to carry through real 
social reform work. The palliative measure under contemplation 
while this is written, an emergency currency to be issued by the 
National Banks, whatever other objections can be brought forward 
against it, has the great defect of being only a drop in the bucket. 
The amount it would add to the currency of the country is far too 
insignificant, when compared with the normal increase m the volume 
of our turnover and the corresponding demand for currency. Only 
an elastic currency, whose supply expands with the demand, can 



264 TIJE ECONOMIC A.M) SOCIAL I'KOHLEM. 

free us from our worst peril, the permanently impending- financial 
crisis. 

The next step should be the nationalization of the land, and 
only then may we be ripe for the nationalization of distribution, 
in the sense of exchange. This great reform, too, may be 
reached in Europe before we begin to touch it in this country. On 
the European continent the tobacco and alcohol monopolies have al- 
ready paved the way for the idea of State distribution, so that it is 
no more a question of a new principle, but merely one of extension. 
In England the elimination of competitive trading might be reached 
through the extension of distributive co-operation, which has already 
made much progress. 

Though the work of distribution lends itself far better to na- 
tionalization than that of production, and ought to precede the latter 
for reasons already given, the opposite course might prove easier in 
this country, for the reason that important branches of production 
have been almost monopolized by the trusts, while millions of little 
folks find their independent bread in the work of distribution. These 
clamor loudest against the trusts, though in their bulk they them- 
selves are by far more voracious and dangerous leeches, drawing 
the people's life blood, than the most tyrannical trusts. That the 
masses do not recognize this, is most natural and has always been 
so. Long before there has been any record of human history man 
hunted the huge carnivori. Their destructiveness was as evident 
as is now that of the big trusts ; and yet how insignificant was it 
compared with that of those microscopical beings, the bacteria, which 
only our advanced science, armed with powerful instruments, has 
begun to discover, and of whose existence the old lion hunters were 
absolutely unconscious. The trade parasites are far more dangerous 
to human welfare than the trust tigers ; but it is easier to shoot lions 
and bears than to destroy bacteria or even to discover them. 

So it is a much more difficult task to organize national distribu- 
tion in the place of the teeming powerful middlemen hive than to 
nationalize our principal industries ; for anybody can see clearly 
that the substitution of the people as a whole for the present trust 
shareholders is a very simple matter, need not even change the trusts' 
system of administration, nor even the personnel; for the same man- 
agers, foremen, bookkeepers and correspondents could attend to the 
work. The only difference would be in the persons of the dividend- 
receivers. And so, though it is not the way the scientific reformer 
would choose, the American people perhaps will begin with the 
nationalization of production, or, anyhow, with that of the trusts. 
The distribution of the trusts' products might then also be carried 
on by government officials, and the rest would be a mere question 
of extension, until we arrive at the realization of the socialistic ideals, 
the whole of production and distribution carried on by the consumers 
on their joint account. 

In this way the co-operative commonwealth, the downfall of 

\ 



SOCIALISM AND TRUSTS. 265 

the competitive system, may be reached by peaceable evolution. 
There is little hope, however, of such a consummation, unless we 
first thoroughly reform our system of government in the direction 
indicated in the chapter on "Democracy." Without the referendum 
and the initiative, which destroy the representative's power for evil, 
we cannot kill corruption, which surrenders the legislative apparatus 
into the hands of the big corporations, allowing the wolves to con- 
stitute themselves the guardians of the sheep. The briber will dis- 
appear when the bribed "cannot deliver the goods." The propor- 
tional vote, besides the advantages elsewhere enumerated; will finally 
eliminate the greatest difficulty which we generally have in our mind's 
eye when we think of State management of industry and commerce 
under the present accidental majority system. The proportional 
vote enables each trade to send its own representatives to the capitol, 
and these representatives would show more fitness for the work of 
industrial and commercial management undertaken by the com- 
munity than the advocates of the monopolists, who dominate in our 
existing parliaments. The co-operative commonwealth would be 
administered by men selected as leaders by the workers in their 
special branch of trade or by men holding like opinions scattered 
all over the country, not by the vote of men living accidentally in 
tlie same district ^of the most diverse interests and opinions. 

State management carried on by men so selected would be 
totally dififerent from that which we could expect from the fruits 
of our present voting system. And yet this simple, easily attainable 
change is not comparable with the much more momentous one we 
may hope for from a systematic education of the future voters and 
statesmen in schools in which the young are prepared for universal 
peaceable co-operation, for human solidarity with "one for all, and 
all for one" as the leading parole, instead of "make money, honestly, 
if y«u can, but make it anyhow, for the devil takes the hindmost. 
Only take care you keep out of the penitentiary !" the banner under 
which the present system marches, which teaches the struggle of 
all against all. 

To sociaUsm belongs the future ; many of the world's best men 
and women agree in this, though they may differ in regard to the 
methods of attaining the lofty goal. The step by step method here 
proposed may, after all, prove more practicable than the radicalism 
of Social Democracy, to whom Henry George said twenty years 
ago : "We both want to reach the Pacific (the people's good). You 
think we shall reach it only in Yokohama (Socialism), while I be- 
lieve we shall already be there at San Francisco. (Land restora- 
tion.) Well, all I have to say, is: let us go by one of the Pacific 
railroad trains to San Francisco — which anyhow is on your way, 
too. If you are right, I shall go on with you; and if I am right, 
you save the trouble of going farther." 

Unfortunately the blind conservatism of vested interests is the 
worst obstacle in the path of peaceable evolution, which perhaps will 



266 THE ECONOMIC AND SOCIAL PROBLEM. 

continue stemming the flood until it breaks through all obstacles in 
one mighty all overpowering deluge. 

And for all that the defenders of these vested interests are the 
very men whom we hear declaiming against the despotism the people 
would be subjected to under Socialism! 

It is not the least amusing among the many vagaries of the 
strange transitory period through which we are passing that it is 
usually the despot, and those belonging to his coterie, who paint 
with vivid colors the despotism to be expected from the Socialist 
State. It is not the poor factory worker or agricultural laborer 
working as hard as a slave, and with the submission of one, who 
trots out this bugbear ; but the employer, to whom present condi- 
tions have given powers resembling those of the slavedriver. Or 
the landlord and capitalist, who, without responsibility of ownership, 
own their miserable tenants and debtors as thoroughly as if they 
were mere chattels. Or those who in books and newspapers take 
up the cudgels for capital. After all, there will not be the least need 
for the Socialist State to extend her business* undertakings beyond 
distribution, transportation, communication, and, perhaps also, the 
production of the necessaries of life — leaving the production of 
luxuries to free competition. The painter of portraits and landscapes 
may be as severely left alone as the performer on the 'cello or the 
writer of a novel. But even in all other branches of production full 
liberty might be granted. Let them compete, if they can, after the 
land belongs to the State, after the means of exchange is accessible 
to everybody, and after distribution is nationalized. There will not 
be much to fear. 

Nobody forces us to take the railroad or to make use of the 
post office, the telegraph and telephone. We have the most unlimited 
privilege to walk and to send messengers, but the fact that anybody 
performs distant land journeys on foot or by any conveyance but 
the railroad has become more and more exceptional ; while not one 
man in a hundred ever sends a messenger beyond the distance of a 
few miles where the post office, telegraph or telephone performs 
the same service for a trifle. Under such conditions, there is no 
reason why seemingly irreconcilable parties might not work together 
after all. Even the most extreme communist does not like to sacri- 
fice the liberty of the individual to work as and where he pleases, 
but he prefers dependence to the freedom of starving. A comfort- 
able and certain living as a little wheel in a large machine seems to 
him preferable to uncertainty of employment as the price of inde- 
pendence — if we can call by this name the present state of things 
which forces him to become a part of a private machine. Hunger 
and cold, which now force him to undertake the most repulsive and 

* Only the bnsine?s. the economic task of Socialism, which is to supply 
it with the means for its important social reform work, is within the scope 
of this book. .Abler pens have taken up this latter work, and principally the 
State's relation to the family, especially to the child of the future. 



SOCIALISM AND TRUSTS. 267 

dangerous work, are more efficient means of coercion than the whole 
poUce force of the SociaHst State. Is it astonishing that under such 
circumstances he does not share the aversion in which the well-to- 
do hold communism? An aversion readily understood in the case 
of men to whom a comfortable position gives a certain amount of 
independence from which they are loth to part. For the very sake 
of this independence, however, the classes may be counselled to look 
at the question for once from the point of view of the masses, of 
the poor and down-trodden, who form the majority, and whose will 
must finally prevail. 

Who is to blame if this will should finally jeopardize the posi- 
tion of the others, may be their very existence? Is it not their teach- 
ings that effectually inculcate the lesson how political power is gained 
by graft and oppression and used for graft and oppression? Are 
these gentlemen, these owners of large corporations, the perpetrators 
of wholesale robberies, in a position to oppose important economic 
reforms or even downright Socialism because they call them "con- 
fiscation?" Have the worst kind of step-paternalists a right to rail 
against the paternalism of the State? 

They are the breeders of revolution and their present policy is im- 
potent against its spread, for as a witty Frenchman once said : "You 
can do anything with bayonets, except sit on them." That their 
antagonists are not despicable is shown by the latest platform of 
American Socialists, which for the first time has modified the pre- 
posterous proposal of nationalizing the whole of production in a 
manner which make it acceptable to earnest social reformers of all 
classes. It demands : 

"The collective ownership of all industries which are organ- 
ized on a national scale and in which competition has virtually ceased 
to exist." The preceding part of the programme which demands 
"the collective ownership of railroads, telegraphs, telephones, steam- 
ships and all other means of transportation and communication,^ and 
all lands" only needs some slight limitations to make it come within 
the boundary lines of many adherents of the old parties. As a whole 
I think it will be safe to predict that within a measurable time this 
programme, without essential modifications, will become the pro- 
gramme of all progressive Americans. Dr. Johnson's axiom : "It 
is no use bolting a door with a boiled carrot" will more and more 
be recognized a practical policy. Half measures are often worse 
even than standpattism. 



268 The tcuNOMu and social problem. 

CHAPTER IX. 

CONCLUSION. 

It is the fight for the truth, not for success, which is certain of final 
victory. 

I have done. What 1 give is the outcome of a quarter of a 
century's study, concurrent with half a century's practical work in 
the field of industry, trade and banking-. I do not flatter myself that 
the book will prove to be popular. The public interested in socio- 
logical work is limited, and often wedded to some favored method 
of cutting ofT the hydra head of social misery. Unfortunately, the 
beast has more than one head, as Hercules found out in the good 
old time when monsters yet abode upon the earth in their undis- 
guised ugliness, so that heroes knew exactly where to strike. They 
are much worse in our time, when hired pens so cleverly manage 
to hide them behind beautiful names, often impenetrable armors for 
the intellectual lances of the multitude. Capital, the friend of labor! 
Capital meaning the market value of the privilege to fleece labor. 
Interest, the retvard of abstinence! The abstinence of those who 
have to pay it. The instig^ator or saving! As if the bee needed in- 
terest to stimulate its honey-collecting work, and as if interest, by 
reducing the amount of savings, necessary to live without further 
work and by disabling the interest payers, etc., from saving, did not 
prevent more work than it stimulated. Free trade! Even if it means 
opening our own armor, while others double their protective shield. 
Laisses faire! Even if the people starve. Sacrcdncss of property 
and full play to indixidual effort! Even though property means the 
soil of the country, and though life and work are impossible without 
land. Sound money! Even though soundness means a growing 
monopoly for the owners of a scarce commodity, w'hich has been 
made the only legal tender for debts, the only standard of value, the 
only legally valid means of exchange. Credit the soul of business! 
By exacting interest which kills trade. Gradual equalization of 
wealth! Because the rate of interest goes down, in reality the sign 
of an unnatural overgrowth of tribute-claims competing for the lim- 
ited quantity of safe tribute. Free trade in land! To have the mort- 
gage-lord take the place of the landlord; the plutocrat that of the 
aristocrat. Oz'er-popuiation! With an over-production of all neces- 
saries of life. Over-production! With millions of needy people. 
Survival of the fittest! The fittest often being the useless sprig of 
a line of idle drones, who overcomes the honorable toiler. 

No wonder it is difficult to find the head of the hydra, the new 
head which has grown in place of the old one : Plutocracy, the ugly 
successor of Despotism! Who will be the modern Hercules to cut 
ofT this head? Will it be that great nation which has done so much 
already? Noblesse oblige. Will its great Declaration of Indepen- 



CONCLUSION. 269 

dence from foreign oppression be followed by another much more 
in'portant one, directed against the New World tyrant ? Let us hope 
so ; for nowhere has this despot attained such gigantic power ; no- 
where is his yoke more strongly felt. 

This work would certainly court a greater popularity if it had 
followed one of the well known flags ; for example, that of Social 
Democracy. I have tried to do her justice, but I could not follow 
her lead, nor do I believe that the people as a whole are prepared 
to do so ; for only the work of the day appeals to them, not that of 
the future. The flag of the Single-Tax is followed by some of my 
best friends. None of them can have a higher veneration for the 
great founder of their school than L His great "Progress and 
Poverty" did more than anything else to speed me on the path of 
social reform work, but they are altogether too onesided in their 
aims and are wedded to special methods, which can never be suc- 
cessful. Currency Reform, necessary and urgent though it be, has 
been the banner under which false issues have been put forth, while 
the practical plan is almost completely ignored. On no other field 
have cranks and fadists held such orgies. Rarely have partisans 
been more deaf to other voices. Tariff Reform, a rag pulled to one 
side by protectionists — who in their narrow and usually selfish par- 
tisanship lose sight of all other aspects of the great social problem, 
but foreign competition — and to the other side by the nothing-but- 
freetraders — almost as blind Don Quixotes, riding their rosinantes 
to death and doing all in their power to make disobedient facts ac- 
commodate themselves to their theory. 

These classes are too deeply engrossed with their own specialties 
to heed the physician who contends that the disease of the social 
body cannot be cured with one remedy. They consist of estimable 
men who are far ahead of that ordinary run who go their way 
through the world without realizing that they, too, are called upon 
to work for the great change, which, though sure to come, could be 
reached much sooner if they all helped to the best of their abilities. 

It is no easy matter to reach the masses ; in fact in ordinary 
times it is impossible ; but, fortunately, ours is not an ordinary time. 
We live in one of those rare periods of which the poet says : "The 
time is ripe and rotten ripe for change," a period in which a great 
revolution is preparing, which is beginning a new chapter of human 
history. We have seen several such periods since that great one 
which began on Calvary in far off Jerusalem. One of them that 
which fourteen centuries later was marked by the introduction of let- 
ter printing, which made knowledge, once the monopoly of the few, 
the property of the people. A little later, the discovery of a New 
World, destined to become the cradle of liberty, was followed by 
the great Reform.ation, that began the liberation of the human 
mind from ecclesiastical serfdom. Another century came which saw 
the sailing of the Mayflower with its wonderful potentialities ; which 
witnessed the uprising of a nation and the fall of a faithless king, 



2yO THE ECONOMIC AND SOCIAL PROBLEM. 

followed by the peaceable revolution which confirmed the ^reat prin- 
ciple of self-government for the Anglo-Saxon, the seed of 1776 and 
1789. 

The ground had thus gradually been prepared for progress of 
a different nature in which Invention led the world to the conquest 
of untold wealth and wonderful possibilities of wellbeing for all. In 
this miraculous mastery of nature's powers, these almost unbeliev- 
able transformations made by the Alladin's lamp of science and 
technical progress, battle after battle was fought in such quick suc- 
cession that the armies had not much time to pause and examine 
their commanders. When at last they did so, their observation re- 
vealed to the astonished warriors that, during their march of con- 
quest, the leaders who had urged them on, had gradually usurped 
such despotic power that a new kind of slavery had arisen, a slavery 
all the more strange because so little to be expected as a consequence 
"of such wonderful achievements. 

The rage brought on by this discovery spreads quickly ; but the 
first storm takes the wrong direction. It attacks persons and classes, 
instead of looking for causes. In this book I have investigated these 
causes, after explaining the radical difference between the new 
problem and the problem of the past. I have shown that it is a 
question of clearing a free path for the immense productive power 
we possess; and no longer one of the division of an insufficient stock 
of wealth. We saw how land monopoly and inelastic money have 
been the main obstacles which prevent production from reaching 
the limits of productivity, and from thus creating wealth for all. It 
was then easy to indicate how the land can be made accessible to 
all users, without confiscation, or the imposition of new loads on 
the workers' shoulders. It proved a little more difficult to explain 
how an elastic money can be created, presenting an unchangeable 
standard of value and easily accessible to producers and traders. 
Interest, the enslaving force through which billions of so-called 
wealth — in reality only the market value of tribute-claims — became 
the property of the few and the shackles of the many, needed no 
special system of attack ; for it sufficed to prove its dependence on 
the two great monopolies ; their downfall entailing its disappearance. 

After cutting the roots of those monsters known under the 
name of Trusts by the two fundamental reforms, their final over- 
throw, or, at all events, their transformation into harmless and use- 
ful factors in the co-operative circle, was shown easy by the help of 
another important reform, i. e., the nationalization of distribution; 
an economic factor of such potency that it would render unnecessary 
the nationalization of production. 

But will such great transformations ever be reached by the 
process of peaceable evolution through the ballot? The political 
reforms needed to make this possible were discussed ; also another 
path to the same goal, voluntary co-operation, was surveyed. Mutual 
l)anking, though not providing new money, at least supplies a credit 



CONCLUSION. 271 

system, independent of money and land monopoly, and thus may 
h^lp in the final battle against the main forts by mining their out- 
works. With its help, co-operation in distribution could obtain 
part of the power which the nationalization of distribution would 
completely secure, and thus might help to render the trusts innoc- 
uous. 

Not a single specific ; but the plan of a complete campaign, mak- 
ing use of the most diverse forces. No such patent medicines as 
Single-Taxers, Freetraders or Bi-metallists prescribe, and therefore 
a plan likely to be proscribed by these gentlemen, who like the crank 
of an engine always come back to the same point in the revolutions 
of their mental mechanism ; yet on that very ground a plan that 
ought to commend itself to all who are not yet married to an Ism ; 
not only to the poor, downtrodden masses, but to the very men now 
looked at as their oppressors. What tends to keep these men back 
from helping in the great fight and makes them limit their efforts 
to the domain of charity and education is that very appeal to a 
class fight which is the shibboleth of Marx and his followers. 

We hear a good deal about classes, class consciousness, class 
fights, etc., but are these not rather loose verbalisms? While some 
simplify the task by merely distinguishing between the rich and the 
poor, others, believed to be more scientific, classify on the one side 
the owners of the means of production and distribution, and on the 
other those whose labor sets these agencies ,to work. Practically 
the fight is between employers and employed, and may be summed 
up in the endeavor of the employers to get as much work as they 
can obtain for as little money as the employed can be induced to 
accept; and the endeavor of the employed to give least work for 
as much money as they can extort. Unions have been formed on 
both sides, and the war goes on with varying success. At the outset 
the employers' unions are at an advantage, as not only prejudiced 
judges but also Hunger and Cold fight in their ranks, and not only 
weaken the resisting power of the united workers, but also recruit 
their worst enemy, the "scab" or non-unionist. In the end, however, 
the result of the war seems beyond any , doubt, for the working 
masses form the large majority of the nation ; their will must finally 
become law if they put aside the poor weapon of striking and make 
good use of their political power. It is easy enough to see in 
which direction this power will be used, unless the fight is shifted 
to a new field. At present the opinion begins to prevail 
among them that against the seeming tyranny of the employer the 
only remedy is his elimination, by making the workers their own 
employers who shall own their means of production in common. 
From such a narrow point of view Socialism necessarily is the only 
outcome. I have tried to show in the preceding chapter that for 
the toiling masses even this alternative is an immense progress from 
their present state, but that another course oflfers which not only 
promises them greater advantages, but would be more acceptable 



2';2 THE ECONOMIC AND SOCIAL PROBLEM. 

to the reigning classes, who might be gained over if their antagonists 
met them half way. This alternative has been presented in these 
pages. If it should not prove acceptable to the men who represent 
the cream of our workers : the unionists, it is because they have 
been too long in the fight against persons to recognize the fact that 
it is not persons but certain institutions which hold the fort against 
which their attack ought to be directed. Unfortimately, many of 
the victims of these institutions do not fight against them, but try 
to use them as a ladder for their own personal elevation from the 
ranks of the downtrodden into those of the oppressors, who would 
be powerless without the cupidity that recruits the ever ready army 
under their command. It is this cupidity which makes the masses 
listen so readily to their worst enemies, the land owners, to whom 
are allied the men who make a living by selling or conveyancing 
land — those eloquent preachers against the wicked ones who want 
to despoil the poor worker of the little plot for which he has been 
saving up during so many years. Or the money-lender, who rallies 
him to the defence of interest, pointing to the benefit accuring to the 
poor saver from his investments in the savings banks or life insur- 
ance companies. Or the banker, vaunting the good old honest gold 
dollar, and warning the man of the people against worthless paper 
which is bound to ruin the industrial classes. 

It is the old story of the wolf who preaches to the sheep that 
the right of devouring other animals is one of the most sacred 
natural laws, equally beneficial to all creatures, and therefore not 
to be infringed by anyone without extreme danger ! "These agi- 
tators want to deprive you of the right you have to gorge yourselves 
on wolf flesh ; just think of it !" Or the story of the slave-holder 
who tells his human chattels that slavery is a profitable institution 
to them. "Has not Caesar, a former slave, after buying his liberty, 
bought several slaves for himself? Why should not all of you have 
the same chance?" 

Let the worker calculate how much his share in the nationalized 
land would amount to, and how much on the average he can ever 
hope to own, under present conditions. I have shown in Chapter II. 
that the nationalized rent would yield enough to ensure him and his 
wife a higher pension for every single year after his retirement from 
work than, in ninety-nine cases out of a hundred, the whole value 
of the little plot of land which he can ever hope to possess free of 
debt, would figure up to. I could equally prove to him that the 
amount of interest he pays during his life in the price of everything 
he buys or of every dollar he borrows, as well as in the loss caused 
by lower wages or unemployment, due to the interest paid by his 
employer, exceeds a hundred-fold the interest he obtains for his 
scanty economies from the savings bank or through the reduction 
on the premium he pays to the life insurance company. But all this 
dwindles into the background when he takes a broader view, when 
he com^ to understand the part which the institutions thus praised 



CONCLUSION. 273 

to him play in the economic process. When he has once reahzed 
the truths which this book tries to inculcate : that the social mystery 
of the past and the present century — the problem of want through 
superabundance, which has succeeded the familiar and explicable 
question of misery through insufficient productive power — that this 
seemingly incomprehensible problem is due .to capitalism ; and that 
capitalism must perish when its roots (rent, and interest) are de- 
stroyed, with the soil of private land ownership and hard legal tender 
money which they luxuriate in — when the worker has thus gained 
the solution of our present-day problem, he will behold the dawning 
of a new era. Instead of clamoring for more labor laws, he will 
join his employer— after all, a worker, too— in the great fight against 
monopoly, the soul of capitalism, their common enemy. 

Then and then only will victory crown their joint efforts, a 
victory without any vanquished, for the fertility of unfettered pro- 
ductive power is so wonderful that the compensation of the cap- 
italists will be easily accomplished. With the disappearance of pri- 
vate rent and interest as a continuous doubling force of their wealth, 
our rich will gradually consume it. It would simply mean that a 
certain number of people have deferred consumption, while others 
consent for a while to use the wealth thus saved in the shape of 
tools of production, to hand it back in the form of articles of con- 
sumption of all kinds at the time when the lenders want it. For 
the advantage reaped from the use of the tools, the borrowers would 
render the service of preserving their creditors' wealth intact. The 
longer the period during which wealth is thus freely lent, the better 
for the borrowers. If the lender is so rich that, as in the case of the 
Rockefeller family, the mere consumption of the accumulated wealth, 
without interest, would give a yearly income of a million dollars 
during a thousand years, this would simply mean that generations 
after generations of workers need not at all think of reimbursement, 
that they may almost look at the capital as belonging to themselves. 
Practically, the liquidation would probably terminate somewhat more 
expeditiously, for it is not to be supposed that, in a world in which 
the wealth-producing power of labor benefits principally the_ work- 
ers, and thus conquers for them the highest rungs of the social lad- 
der, any body should want to continue living as a drone. Where 
only the self-made man is honored, inherited wealth will finally be 
flung away as something derogatory. 

An interesting precedent is supplied by history. Professor 
Roscher tells us in his "System der Volkswirthschaft" (Volume III., 
p. 21), that in the year 1293 the citizens of Florence made a law, 
according to which "the Grandi (noblemen, patricians), who had 
become members of a guild to enjoy the privilege of sitting in the 
Council, had to actually work in their trade, if they did not want 
•to risk the loss of their franchise. . . . People could be ennobled 
as a punishment. . . . After the expulsion of the Duke of Athens, 
the most popular noble houses obtained permission to relinquish their 



^74 



THE ECONOMIC AND SOCIAL PROBLEM. 



nobility. In Pistoja all the disturbers of the public peace were 
lentered into the register of nobility (1285). ^^ Guelphic Parma 
all the Ghibellines were ennobled (as a punishment) in 1248." 

This reads like satire, and certainly appears as strange as my 
prediction of the future ; and yet it is historical fact, recorded by a 
careful German university scholar. But results more wonderful 
would follow our land and currency reforms. We have become 
so accustomed to the present state of things that it is hard for us 
to realize how difficult it would be to make anyone, unacquainted 
with our history, understand our present plight. It would be almost 
impossible to make him comprehend how, with such a wonderful 
productivity of labor, the workers could not soon free themselves 
from all their obligations — in fact, how they have not long since 
gained the ownership of all wealth. Even if he understood how 
our ancestors committed the folly of selling their terrestrial birth- 
right, or how they were deprived of it by fraud or force and thus 
recognized the fundamental basis of all our land titles, how explain 
to him that the workers, with their untold potential wealth, have 
not long since bought back the land ? We should further have to tell 
him how it came about that we made a pretty yellow metal our fetish 
and our sole legal tender, that debts in this world are not payable 
in labor's products, but in coins made out of the scarce metal of 
which not enough exists to pay one-twentieth of the obligations con- 
tracted in its coins, and only then would he comprehend the rest. 
If possessed of any logic at all, he could not fail to realize that, 
under such circumstances, the creditor class is bound to becoipe 
richer, the debtor class is sure to grow poorer all the time. The 
former play the bull game once worked with remarkable success at 
the New York Stock Exchange on the bears in Northern Pacific 
railroad stock. The bears had sold more of the stock than existed 
in the market, and, as a natural consequence, had to accept any 
terms the victorious bulls chose to inflict on them. If, instead of 
claiming a comparatively moderate fine to free the others from 
their engagement to deliver something which was not obtainable, 
the victors had so forced up the prices of the stock that all the 
wealth of the world would not have sufficed to compensate them, 
there might have been no lep"al impediment, except that unwritten 
law according to which, as t1 ." German proverb says: "Wo nichts 
ist hat der Kaiser sein Recht vorlorcn" ("Where there is nothing, 
the Emperor has lost his rights"). The bankruptcv of the debtors, 
after they had given up all their possessions, was the only practical 
limit, and the spoilers had reasons for stopping short of this extreme 
result of their power. The world's creditor class is in exactly the 
same position towards the world's debtor class ; the difference is only 
that the deficit between the money stock and the ens-agements to de- 
liver it is by far greater than it was in the case of Northern Pacific 
stock. The debtors have promised to pav from twentv to thirty 
times more gold than the world possesses, and the creditors give them 



CONCLUSION. 275 

prolong-ations of the engagements against the pa3;ment of a fine, 
called interest, a fine which is payable in the same unobtainable gold, 
so that in this twentieth century the interest dues of one single year 
by themselves alone by far exceed the whole gold stock in existence. 
In spite of this fact, fines upon fines are added, interest and com- 
pound interest further increase the debt, until bankruptcy liquidates 
the account. And even this is not all. 

By rendering the legal tender coins — the basis of our currency 
— less and less accessible to the producers and dealers (who impera- 
tively require a means of exchange), the creditor class has suc- 
ceeded in monopolizing, to a great extent, natural resources, on the 
score of their gold claims. The rent tribute grew with the interest 
claims, and heavier and still heavier manacles were imposed on the 
purchasing power of the masses and consequently on production, so 
that this purchasing power and production had to halt more and 
more behind the growing productivity of labor, which enables less 
and less men to do the work formerly done by all. Manifestly, then, 
growing numbers are thrown out of productive employment, or em- 
ployed at wages lessened by the competition of the unemployed. 

In this way progress necessarily produces poverty instead of 
bringing untold wealth to all, as it will when a small minority is no 
more able to use it as the cement of the strongholds in which their 
monopolies are entrenched : the control of natural opportunities and 
the means of payment. This final summing up intends again and 
again to impress on our workers the fact that a thorough reform 
may be introduced by simple laws which do away with certain well 
defined abuses without overthrowing our whole economic system. 

Observe, that I do not oppose full socialism as the great lode- 
star of the future, but as a practical proposal for adoption by our 
generation. Living men, women and children have to be fed, clothed 
and housed. For living human beings practical methods have to be 
found at once. This is the purpose of the present book. It'appeals 
to those who, convinced of the impossibility of continuing in the old 
groove, look for simple and practical reforms ; not for a revolution 
of the world they are familiar with; and these men and women form 
the majority of the nation. 

Maybe full socialism, under present conditions, is the remedy 
of despair and ignorance, or rather despair through ignorance, for 
those who cling to it do so because the real source of the evil, as well 
as the way out, shown in these pages, lies too deep for the superficial 
observer. Agreed that it is far easier to declaim against "the com- 
petitive system," to draw castles in the air of a new co-operative 
world, at once ready for inauguration as soon as we have smashed 
the present one to pieces, than to diminish the waste of competition 
on practical working lines. Be it so ; but mark it well, ye favored 
sons of fortune, that despair is growing fast, and ignorance is fos- 
tered by your millions spent to keep out of university chairs, pulpits 
and popular newspapers any truthful man who possesses the courage 



276 THE ECONOMIC AND SOCIAL PROBLEM. 

to show things in their real colors. Go on breeding the monsters and 
they will tear you sooner than you apprehend! Help, in the lines of 
fundamental reform, and you will save yourselves by saving the 
people ! 

As I do not wish to leave my readers with the impression that 
the man who can issue such an appeal is an impractical idealist, I will 
at once say that 1 am far from entertaining a hope of its success. 
The appeal is inspired mainly by a feeling of duty. Practically. I 
entirely agree with the words of Professor F. W. Newman in his 
letter to Alfred Russell Wallace : "Our duty is to do what we can 
in detail; but the longer I live the less hope I have of justice, with- 
out changes so great in the persons who hold power that it will be 
called a revolution. I mean justice, not as to land-tenure only, but 
as to many other things equally sacred, perhaps more vital. Until 
popular indignation rises, I expect no result ; and when it rises, it 
may seem easier to make a clean sweep thafi carry a quarter 
measure." 

This is in accordance with the answer I once obtained from a 
socialist after one of my addresses on land nationalization in Ger- 
many. He asked me whether I really believed that the proposal I 
made, to nationalize the land, could be carried with the parties in 
power in the country, and as I could not assert I did, he continued : 
"Well, if we have to make a revolution by force, don't you think 
that we had better take all at once ?" It was the only question of all 
put to me at my meetings to which I did not care to reply. 

However, I want to close my book in a more hopeful vein, and 
I do so by quoting from "The Social Unrest," by John Graham 
Brooks, a book which, though it misses a true conception of the 
social problem, is nevertheless full of interesting information. In 
Chapter X, after an enumeration of the symptoms that indicate a 
conversion of German socialists from intransigent radicalism to par- 
liamentafy co-operation in practical reform work, he concludes : 

"When party tactics are chiefly directed to agitation of this 
kind, the Klassenkampf in its former sense, if not quite dead, is no 
longer alive. To have struck at its roots, this vicious growth of the 
class fight, is the chief moral triumph in the changes here noted. As 
these sectional hatreds are overcome, the ground is first reached on 
which the longed-for social reorganization can begin. The condi- 
tions that shall make such reorganization possible can spring neither 
from hate nor suspicion. They can come only from a completer 
sense of a common and not divided social destiny." But even if this 
passage into the serener seas of a peaceable political and social re- 
form should not be possible without previously weathering the hur- 
ricane of civil war, this book will not have been written in vain. 
Flood tide is followed by ebb tide, action by reaction, and, as history 
has often proved, any political and social advance that outruns the 
people's preparedness is sure to recede sooner or later to this fatal 
boundary line of all solid progress. I do not think this line will in- 



CON-CLUSIOK. 277 

elude full socialism within the life of the present generation. If the 
revolutionary pendulum should swing to that line it is certain to 
swing back again, until further reaction is barred by the educational 
limit. If this book helps towards the advance of the latter, if it con- 
tributes towards an improvement of prevailing conceptions regard- 
ing our land, our currency and our trade system, its author has n©t 
worked in vain. 



FINI& 



r (/ly '09 






This $2.00 Book for 25 cts. 

Five C-^pies for One Dollar. 



The Economic 



.... and . . . 



Social Problem 



By MICHAEL FLURSCHEIM, 

Author of "Rent, Interest and Wages"; "The Real 

History of Money Island and Clue to the 

Economic Labyrinth," etc. 



Published by 
JEFFERSON PUBLISHING COMPANY, 

BASIL BARNHILL, Manager, 
XENIA, CLAY COUNTY, ILLINOIS. 



6^ 



